```

[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

   BUDGETING IN THE CONGRESS: REFLECTIONS ON HOW THE BUDGET PROCESS 
                               FUNCTIONS

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 22, 2005

                               __________

                            Serial No. 109-8

                               __________

           Printed for the use of the Committee on the Budget

  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
22-133                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JIM RYUN, Kansas                     JOHN M. SPRATT, Jr., South 
ANDER CRENSHAW, Florida                  Carolina,
ADAM H. PUTNAM, Florida                Ranking Minority Member
ROGER F. WICKER, Mississippi         DENNIS MOORE, Kansas
KENNY C. HULSHOF, Missouri           RICHARD E. NEAL, Massachusetts
JO BONNER, Alabama                   ROSA L. DeLAURO, Connecticut
SCOTT GARRETT, New Jersey            CHET EDWARDS, Texas
J. GRESHAM BARRETT, South Carolina   HAROLD E. FORD, Jr., Tennessee
THADDEUS G. McCOTTER, Michigan       LOIS CAPPS, California
MARIO DIAZ-BALART, Florida           BRIAN BAIRD, Washington
JEB HENSARLING, Texas                JIM COOPER, Tennessee
ILEANA ROS-LEHTINEN, Florida         ARTUR DAVIS, Alabama
DANIEL E. LUNGREN, California        WILLIAM J. JEFFERSON, Louisiana
PETE SESSIONS, Texas                 THOMAS H. ALLEN, Maine
PAUL RYAN, Wisconsin                 ED CASE, Hawaii
MICHAEL K. SIMPSON, Idaho            CYNTHIA McKINNEY, Georgia
JEB BRADLEY, New Hampshire           HENRY CUELLAR, Texas
PATRICK T. McHENRY, North Carolina   ALLYSON Y. SCHWARTZ, Pennsylvania
CONNIE MACK, Florida                 RON KIND, Wisconsin
K. MICHAEL CONAWAY, Texas
CHRIS CHOCOLA, Indiana

                           Professional Staff

                     James T. Bates, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, June 22, 2005....................     1
Statement of:
    Prepared Statement of Hon. Bill Frenzel, guest scholar, 
      Brookings Institution, and former Member of Congress.......     5
    Allen Schick, Ph.D., Professor, University of Maryland.......    11
    Richard Kogan, Senior Fellow, Center on Budget and Policy 
      Priorities.................................................    20
Prepared statement of:
    Mr. Frenzel..................................................     7
    Mr. Schick...................................................    15
    Mr. Kogan....................................................    25

 
 BUDGETING IN CONGRESS: REFLECTIONS ON HOW THE BUDGET PROCESS FUNCTIONS

                              ----------                              

                        WEDNESDAY, JUNE 22, 2005

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:01 A.M., in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee), presiding.
    Members present: Representatives Nussle, Crenshaw, Putnam, 
Diaz-Balert, Hensarling, Simpson, Bradley, Spratt, Moore, 
Edwards, Baird, Cooper, Allen, Case, Cuellar, and Kind.
    Chairman Nussle. Good morning and welcome, everyone, to 
today's hearing on the congressional budget process.
    Some of you may feel like this is Groundhog Day--it is. We 
welcome back those true warriors in the effort to reform the 
budget process and am pleased that we have several experts to 
participate in today's hearing.
    First, former Congressman and former ranking member of this 
committee back when the Republicans were in the minority, Bill 
Frenzel from Minnesota. Who was well-known in his time here for 
his expertise in a wide range of issues and particularly for 
his knowledge of the budget process in terms of history and 
context as well as policy and even the practical politics of 
what has to happen. Bill, welcome back.
    We also have Professor Allen Schick, who was actually 
involved in the development of the Congressional Budget Act and 
has since written some of the most perceptive analysis on the 
history and context of the congressional budget process that 
you can find.
    Finally, Richard Kogan, who is well-known as a fierce 
partisan but also very capable and expert in the budget process 
and for his commitment to the integrity of that process. We 
welcome him back as one of the most knowledgeable individuals 
in the field.
    We welcome all of you to the committee.
    Every few years or so, we hear from a handful of experts on 
the congressional budget process and most of these experts will 
say that the process has completely fallen apart or it has lost 
its usefulness, it is irrelevant, and some might even say it is 
dead. Of course, these declarations tend to be more frequent in 
those years when we have missed the deadlines, run past the 
speeding limit signs, lump several appropriation bills into one 
big omnibus package, or certainly when one of the Houses of 
Congress has failed to even pass a budget.
    In fairness, I don't think anyone, myself included, would 
argue that the budget process is perfect or it works perfectly 
through every step of the overall process every year. But I do 
think most would agree that, while admittedly in some years 
more than others, it has served as a critical tool for Congress 
over the last 30 years.
    So before we get too far into the myriad discussions I know 
are ongoing on how we might reform the congressional budget 
process, I thought it would be a useful exercise to kind of 
step back and take a comprehensive look at the current process. 
These include various aspects and implications both for policy 
and in practical operations of the Congress, why we have the 
process, and why we need it in the first place.
    The Budget Act of 1974 for the first time gave Congress an 
actual process for budgeting rather than a series of piecemeal 
responses to Presidential spending requests. It empowered 
Congress to set its own priorities which heretofore, prior to 
the 1974 Budget Act, really was not something Congress had 
determined in its macro sense. It empowered Congress to set its 
priorities, whether or not it agreed with the President, and 
set in motion the policy choices that it needed to follow. It 
gave Congress the means to determine spending by setting a 
limit on total spending, by directing spending to what had been 
determined as the Nation's most important priorities, and by 
the power to enforce the agreed-upon spending limits through 
points-of-order.
    Of particular consequence this year, the Budget Act gave 
Congress the means of addressing mandatory spending within the 
context of an overall budget plan.
    So, in short, the Budget Act empowered Congress to control 
the purse by determining its own priorities, policies, 
establishing a systematic means to organize its decisions, set 
policy goals, and combine all of this into one blueprint, the 
budget. This was done to guide Congress throughout one of--not 
only the coming fiscal year but, for that matter, into the 
future.
    Let us take this year as an example. We have got 
appropriation bills moving through the House at a record pace--
it is nice that we are setting this so-called record pace; it 
is too bad that that doesn't happen more often. For the first 
time since President Reagan was in office, we are providing for 
the most critical priorities first, with an actual reduction in 
many nonsecurity discretionary spending programs.
    At the same time, we have got eight different authorizing 
committees working; talking; and considering having hearings on 
reform for the actual mandatory spending programs that are 
looking at actual savings and reform proposals. They are 
working in as challenging an area as Medicaid and also looking 
to strengthen our Nation's defined benefit pension. All of this 
was laid out in a budget process.
    While in the interest of reform, this did not start there 
in every case. It is the budget that really has given the work 
of reform a much-needed push or calendar, if you will, and set 
a schedule for determining to tackle some of the Federal 
Government's biggest challenges in the coming years.
    This year is far from over, and we have got a lot of 
difficult work ahead. But as far as the budget years go, so 
far, I would say, so good and so much for the claim that the 
budget process is dead.
    All of that being said, I will be the first to admit that 
things don't go this smoothly every year; and the year is not 
over yet. But it is particularly important, I think in those 
years when Congress's priorities might not be as clear or its 
will as strong, that we need a strong, solid budget process to 
keep us headed in the right direction.
    As I noted a moment ago, there are various discussions 
going on generating enormous ranges of ideas on how the budget 
process could or should be reformed. With suggestions ranging 
from adding a point-of-order here or there or scrapping the 
whole thing and starting over. I would guess that every member 
of this committee has at least one idea that they feel must be 
included in order for the definition to suggest that we have 
reformed the budget process successfully.
    It is no secret that I have my own ideas on the right way 
of doing it, the correct way of proceeding, and I could easily 
round up a group of like-minded witnesses to tell us how great 
my ideas are. But, as I am sure you will gather from our panel 
today, that is not what I did. I genuinely believe that it is 
in all of our best interests to ensure that we not only have a 
solid grasp of what we have already done, but we also need to 
keep an open mind about what we actually need before we start 
making decisions on how we should change it.
    So I want to stress once again that the purpose of today's 
hearing is to really take a comprehensive look at the budget 
process. This is about how we use it to make decisions, not 
about the decisions themselves. Again, it is about the rules 
that we go through, not how those rules are applied to actual 
substantive or policy decisions.
    How does it help us determine priorities, set agendas, 
guide Congress' work throughout the year? Why do we have it? 
Why do we need it? In a big-picture sort of way, is it working, 
or why not? I think that is the critical, important discussion, 
in and of itself; and it is a much-needed step if we are going 
to lay the groundwork for budget process reform.
    While I have no doubt that members might be tempted to use 
their time to tout their own personal ideas for specific 
reforms. I will ask that members of the committee try and 
recognize the importance of having this broad 30,000-foot 
discussion first before we turn to some of those specific 
proposals, and I will try and do that as well.
    With that, I would just welcome our panelists and look 
forward to a good discussion for those of us that are 
interested in this topic and turn to my friend, Mr. Spratt, for 
any comments he would like to make.
    Mr. Spratt. Thank you very much, Mr. Chairman; and thank 
you in particular for calling this hearing and for selecting 
this panel. If we wanted variety and vigor of ideas, depth of 
experience and perspective, we couldn't have a better panel 
than the panel before us today. I thank all of you for coming 
and for presenting us with some provocative ideas.
    For a good period of time in the 1980s and the 1990s, the 
whole notion of budget process was treated with some disdain. 
That was largely because we invoked the idea often, but we 
never achieved its purported objectives, and that is moving the 
budget from huge deficits into eventual balance. Then, in the 
1990s, after adopting the Budget Enforcement Act of 1990 and 
1991, putting some teeth in the budget process, we finally 
began to move toward success and in 1998 achieved what was 
thought unthinkable just a few years before: We actually 
balanced the budget. In the year 2000, we had a surplus of $236 
billion.
    We have lost that path, and lots of folks are saying--and, 
in fact, one of the most frequently invoked phrases around this 
town is, we are on an unsustainable course, compiling deficits, 
stacking debt on top of debt with no abatement in the near term 
and no end in sight.
    So we ask ourselves, where is the budget process today? If 
it worked in the 1990s--and in looking back retrospectively it 
appears to have worked. Even Alan Greenspan sat where you sit 
and said, I was a skeptic in 1990, 1991, and 1993. I thought 
all of this was a diversion, sort of a red herring away from 
the substantive subject of what do you cut and where do you 
raise taxes. But he said, looking back, I realize that this was 
a significant part of the successes of the 1990s.
    Nevertheless, we have allowed two of the key budget process 
rules that helped us get where we got in the 1990s, the PAYGO 
rule and discretionary caps, go by the way, expire in the year 
2002; and we have got a situation right now which the American 
people and Members of Congress have an awfully difficult time 
defending. How do we come to grips with a problem so compelling 
as a deficit of $412 billion that shows little sign of abating 
over the next years? That is the primary concern we have got 
before us now. How do we get our hands around the deficit again 
and do in the first decade of this century what we did in the 
last decade in the last century of the 1990s?
    There are other functions or offices of the budget that we 
pay all too little attention to. We haven't perfected that much 
since 1974. For example, disaggregation is a huge problem with 
respect to policymaking and with respect to fiscal policy in 
particular.
    One of the purposes of the budget, it seems to me, budget 
resolution is to try to give us something so we can keep our 
eye on the ball and determine whether or not we are moving 
toward our objectives. And that is not just a balanced budget 
but a budget that has programmatic allocations that reflect 
what we think this country needs for education, for health 
care, for defense, for lots of other things. We don't have with 
the appropriation bills that we pass every year that kind of 
clear picture of where programmatically our resources are being 
put, and the budget ought to serve that function.
    Secondly, we do very, very little analysis of generational 
burdens. I wonder which generation under existing budget 
policies is bearing the burden and to what extent we are 
shifting forward the burdens of programs that we are passing 
today. Are we investing enough or consuming too much? We ask 
that all too infrequently in the budget process.
    So one reason for having a budget process is to force us to 
focus upon these issues: programmatic allocations, investment 
versus consumption, defense versus domestic needs. All of these 
things we need to do in some kind of methodical, systematic 
way; and, above all, we need to do it within the bounds of a 
sensible and prudent fiscal policy that doesn't stack debt on 
top of debt and leave our children with an enormous amount of 
debt to bear.
    So the topic before us is of compelling importance, and we 
look forward to your testimony and your contribution to what we 
should be doing, what we can be doing to perfect the budget 
process and to move the budget back toward sensible goals.
    Chairman Nussle. Welcome to our panelists again. We will 
begin by welcoming to the committee its former member and 
ranking member of the committee, Bill Frenzel. Welcome back to 
the committee. All of your testimony as written will be placed 
in the record, and you may all three proceed as you wish giving 
us your best counsel and advice. Welcome back.

    STATEMENT OF THE HONORABLE BILL FRENZEL, GUEST SCHOLAR, 
      BROOKINGS INSTITUTION, AND FORMER MEMBER OF CONGRESS

    Mr. Frenzel. Thank you very much, Mr. Chairman. I served in 
the days of quill pens, and technology is baffling, Mr. 
Chairman.
    Chairman Nussle. Those were better days, I think.
    Mr. Frenzel. And thank you, Mr. Spratt. I will stipulate 
that both of your ideas are wonderful, and that I am for all of 
them.
    I was here when the Budget Act was adopted. I guess I am 
one of those persons who has always been a skeptic, and I was 
at the time.
    As I look back on it, there was, you know, a variety of 
intents and purposes being laid upon the Congress. As you know, 
congressional intent is very difficult to determine. Those 
people who drafted the bills and shepherd them through the 
Congress had one set of intentions. There were plenty of 
resisters. They had different intentions. There were latecomers 
with their intentions. Eventually, the bills were passed with 
overwhelming majorities.
    Most of the people that voted for them hoped that they 
wouldn't ever amount to anything. Those people who drafted the 
bills hoped that they would be able to improve them in the 
future. But their achievement in passing it in the first place 
I think dwarfs anything that has been by those of us who have 
followed. I think we would do them greater honor if we could 
make more frequent alterations in the budget process and try to 
take the process in the direction that at least the drafters 
intended, whether the rest of the members did or not.
    I think most of you at least know of the history of 
impoundments and the congressional reaction to the impoundments 
of Presidents Johnson and Nixon. Really that is what drove the 
budget through the Congress, although the drafters had much 
broader ideas than simply stopping impoundment.
    The trouble that we got into right in the beginning was 
that a number of the budget philosophers at the time were very 
nervous about a new system. Even those who were most 
enthusiastic about the budget were nervous about a new system 
that would unsettle what had gone before. And so, early on, the 
concept of a baseline was conceived.
    As we talk about Congress actually setting priorities, 
which was one of the statements in the committee's paper, or 
taking a comprehensive approach, the baseline, of course, 
drives you to do what you did last year. And while the Congress 
has been able to make changes, particularly beginning in 1987 
running down military expenditures and then later building them 
up again, those changes come very slowly. The baseline causes 
old programs to overwhelm new ones, and to establish new 
programs and new priorities becomes exceptionally difficult.
    Congress wanted to regain the priority setting. They were 
jealous of the President's powers. But what they gained was 
simply, in my judgment, quite a slavish devotion to last year 
plus colas and demographics. It is never easy to allocate 
resources. Nobody ever wants to raise taxes very much. So, 
particularly in times of difficulties, it is hard to establish 
new programs.
    I think Congress has been keenly disappointed from time to 
time that it hasn't been able to move priorities, but there are 
always old programs, that need to be funded at ever-increasing 
levels, that stand in the way.
    Also mentioned in your paper is this theory of the 
comprehensive approach to the budget. Well, in those days--I 
think 1974 was the last year where discretionaries still 
exceeded mandatories--we didn't think a lot about entitlement 
spending. We thought about it, but it didn't seem to be a huge 
problem. And while taking a comprehensive look at the budget 
was one of the alleged virtues of the budget process, Congress 
didn't think about it that way.
    It simply was not very anxious to take on any of the 
entitlements. They just wanted to watch them sit there. The 
real battle was over discretionaries. As long as the 
appropriators were able to exert enough influence so that their 
ability to make allocations and choices was not reduced very 
much, they were able to live with the budget.
    For me, the main purpose of the budget process and the 
Budget Act is to control spending. That was, I think, among the 
least of the concerns of the Members of Congress who voted for 
the Act in 1974. As a matter of fact, you will recall that we 
were all Keynesians then, and the Congress used the Budget Act 
to spend more money than presidents wanted to spend.
    So controlling of spending was not a big deal. Neither was 
enforcement.
    Most of the people that I talked to at the time prayed that 
reconciliation would never be used. Most of the people I talked 
to did not understand what the budget was, and I will have to 
admit I didn't.
    But having tried reconciliation in 1980 and not having 
committed suicide, the Congress entered into it in 1981 in a 
big way. The other enforcement tools of the caps and PAYGO of 
1990, that Congressman Spratt referred to, were great 
improvements, But now they have been allowed to expire, and 
there is not a lot of enthusiasm to get them renewed.
    It is a fact that Members of Congress would like all these 
enforcement tools to be renewed--just as soon as each one gets 
his/her most recent bill passed. Then the enforcement will 
block other Members' spending and tax cuts.
    There are a lot of tools available, but they need to be 
kept enshrined in the law. We haven't done a terribly good job 
of that.
    I have already mentioned entitlements, but I need to say 
again there is the same reluctance today for Congress to really 
look at them. We just let them slide forward. there is nothing 
wrong with the Budget Act in this regard. We look at them, we 
wave at them, we bless them, cry over them, whatever, but there 
is certainly no congressional will to make many changes. We 
look them over carefully and decide they are just perfect the 
way they are.
    The one thing that is mentioned in the committee paper 
where the Budget Act had a much greater effect than anyone 
believed is the idea of setting the congressional agenda. I 
think the drafters of the Budget Act would be aghast at how 
much the budget dominates the congressional calendar. I am 
surprised myself. Mostly, we pass a budget, break our neck to 
do that sometimes, and then we pass appropriations, and then we 
rest and go home. It certainly dominates everything we do.
    Well, in conclusion, Mr. Chairman, Mr. Spratt, and members 
of the committee, the drafters, in my judgment, talked about 
all these great benefits, and political scientists and 
economists have found many more that the Budget Act can do, but 
I don't think that was the general purpose in the Congress for 
passing the Act. However, now that you have it and you find 
that it can do these extra things for you, I think it needs to 
be improved from time to time.
    I have come before you with lots of specific suggestions. 
They are spread all over the record of the last 10 years, and I 
would simply reiterate that I think they are all worthwhile.
    Let us go back to the very beginning. The people who 
drafted the Budget Act knew it was weak. They got as much as 
they could out of the Congress. They hoped to get a lot more, 
and they hoped their successors would get even more. I hope 
that you, as one set of their successors, are a lot more 
successful than my generation, and that you make the changes in 
these laws that are necessary to put the good control 
mechanisms into law, and leave them there.
    Because there is always this strong incentive for Congress 
to resist order and discipline, and budgeteers will always be 
struggling, often vainly, to keep what I think is a relatively 
weak budget system in operation. The urge to spend, the urge to 
cut taxes, the urge to get my program--and if I have to be for 
yours to get mine, we can do that, too--is overpowering; and 
you are the last line of defense.
    I am delighted that there is still some interest in serving 
on this committee. I hope at least some of you are volunteers. 
I wish you great luck and look forward to your questions. Thank 
you.
    Chairman Nussle. Thank you, Congressman Frenzel.
    [The prepared statement of Bill Frenzel follows:]

   Prepared Statement of Hon. Bill Frenzel, Guest Scholar, Brookings 
               Institution, and Former Member of Congress

    Mr. Chairman, and Members of the Committee, I am a Guest Scholar at 
the Brookings Institution, but this testimony is my own and does not 
represent any position or conclusion of the Brookings Institution.
    It is true, Mr. Chairman, that I was a Member of Congress when the 
Budget and Impoundment Act of 1974 was passed. However, I was then a 
very junior member of an oppressed minority, so I cannot take any 
credit for being a mover and shaker in the development of the Act, 
although I tried to be. In fact, I was an interested observer, whose 
recollections grow ever more dim with each passing year.
    As is true with every enacted bill, congressional intent, like 
truth, resides in the eyes of all the beholders. There are many 
different interpretations of intent. I will try to describe what I 
thought was intended with reference to the Broad Perspectives laid out 
in the Committee's statement of Hearing Purpose. Some of my impressions 
were gained at the time, and some came in later discussions with 
members who I thought were among the principal drivers in the House, 
notably Dick Bolling for the Democrats and John Rhodes for the 
Republicans.

                           SETTING PRIORITIES

    The conditions under which the Budget Act arose were dominated by 
the Congress' desire to overcome the Presidents' use of the implied 
power of Impoundment. Presidents Johnson and Nixon had made heavy use 
of impoundment, and members were enraged that money for their 
transportation projects had been stopped, especially to be used in 
carrying out military actions that many opposed.
    That feeling set the tone for much of the discussion about 
``Congress' need to set its own priorities''. The frequent battle cry 
was that Congress, possessor of the constitutional Power of the Purse, 
needed to reestablish its primary role in setting national priorities. 
Congress had an appealing rationale for battle it knew it could win 
against a weakened President.
    Parenthetically, I will add here that Congress has made little use 
of the Budget for priority setting. Part of the reason was that a 
number of early Budget philosophers, prominently Senator Ed Muskie, 
insisted on using baselines tied to existing programs, plus COLAs, plus 
demographic changes. Once the baseline theory was set in concrete, it 
became almost impossible for new programs to compete with old ones.
    Presidents could occasionally push through new initiatives, often 
with the help of friendly Congressional majorities. Congress could 
modify them, but it could seldom inaugurate new programs of its own. 
The old programs, escalated, claimed all the resources. Particularly in 
times of fiscal difficulties (most of the time), there were simply no 
funds for worthy new programs and projects. As long as the budget is 
tied to the baseline, it will be hard for the Congress to alter 
priorities, and impossible to budget for outcomes.
    If Congress really wants to play in the priorities game, it has to 
find a way to liberate itself from baselines, and from the continuing 
domination of old programs. If you can't change the baseline, you can't 
change priorities. Congress has been reluctant to change either one.

                    COMPREHENSIVE APPROACH TO BUDGET

    In the early 1970s, there was a growing realization inside and 
outside of Congress, that, unlike the Executive Branch, Congress had no 
way to develop an overall Budget plan. Congressional spending was 
merely the cumulative result of individual pieces of legislation, each 
passed without much reference to any of the others. It was already 
obvious then that there was no framework for Congress to establish a 
general fiscal policy.
    Many people in Congress who commented on the Act through its 
development made mention of the need for a comprehensive approach to 
the Budget. How could Congress set priorities rationally unless all 
spending could be reviewed at once? But most of them were thinking 
about spending in a different way than we do today. 1974 was the last 
year in which Discretionary Spending was greater than Mandatory 
Spending plus Interest. Most people who mentioned the ``comprehensive 
approach'' were thinking of discretionary spending, rather than 
mandatory.
    Then, as now, appropriators were suspicious of the process, and 
believed that they could provide whatever comprehensive approach might 
be needed themselves. They insisted that the Budget Act not shift their 
traditional control of allocations to others, especially the Budget 
Committee. Appropriators were strong then, and they prevailed, but they 
are even stronger now because directed spending on ``earmarked'' 
projects has become the rule rather than the exception.
    However, appropriators may look at this question differently now. 
They may have a different set of incentives. Their traditional 
bailiwick, discretionary spending, has grown (too fast in my opinion), 
but much less swiftly than mandatories. When Entitlement and Interest 
are combined, nearly 2/3 of spending is mandatory now, and it has 
become the growth engine for spending. The appropriators' 1/3 of 
spending is getting squeezed further each year. The comprehensive 
approach to Budgeting might be a bit more attractive to them now, as a 
potential tool to protect their discretionary spending. They have few 
other defenses against the rapidly rising mandatories which are 
consuming resources formerly dedicated to discretionaries.
    Certainly, for Budget observers, insulated from jurisdictional 
disputes within the Congress, the huge, impending deficits are a 
powerful argument in favor of the need to look at everything before 
making judgments on anything.

                          CONTROLLING SPENDING

    In 1974, Republicans were especially concerned about controlling 
spending and eliminating deficits (that was then). The country had 
endured only 4 years of deficits, and deficits did not extend into the 
future ``as far as the eye could see''. But, wailing about deficits and 
spending has always been an important minority function, and 
Republicans were in the minority at that time.
    Democrats were less interested in this aspect of Budget Process. We 
were ``all Keynesians'' then, after all, and the majority was much more 
interested in stimulation, and, to a lesser extent, priorities, and 
than in control. In fact, in its early years, the Budget Act was used 
by the Democratic majority to increase spending above that requested by 
Republican Presidents. House Budget Committee members used to insist on 
putting new projects by name into Budget Resolutions, or at least into 
the Committee language that accompanied the Resolutions. Those attempts 
did not always survive the scrutiny of the gimlet-eyed appropriators, 
but they were a hallmark of the Committee in the 1970s.
    Over the years, Congresses have wrestled with the notion of using 
the Budget to control spending and deficits (which to me is supposed to 
be the real purpose of the whole exercise), but the struggles seldom 
came to any good conclusion. We can all toll the litany of failed 
attempts, but I won't do it here. For now, let it suffice to note that, 
in my judgment, the only control features that were other than 
sporadically successful, were the discrete caps and the PAYGO features 
of the BEA 1990, and an occasional Reconciliation Bill.
    There are many other suggestions for control, some of which may be 
effective that may be effective, but this Committee well how tough it 
is to amend the Budget Act, so we may never experience them. For my 
part, I am convinced that if the Budget Act, or the Budget process, 
cannot help Congress control spending and deficits, its other functions 
are probably not worth the time, effort and money that we are currently 
investing in it.
    Nevertheless, I am aware of the fact that the Budget Act's 
``Framers'' were very careful to see that the Act did not seek a 
specific policy outcome regarding the deficit. Their intent, I believe, 
was to assert the role of Congress in setting fiscal policy and 
priorities rather than to dictate what the policy should be. I believe 
that they either overestimated Congress' fiscal sobriety, or 
underestimated its fiscal inebriation. Either way the Act was too 
permissive. Had it been written at the end of the 1980s, in a period of 
despair after 20 years of deficits, it might have contained a heavy 
anti-deficit thrust.
    In 1974, I said on the floor of the House that the Act ``Won't 
guarantee a balanced Budget, even though it makes balanced Budgets more 
attainable''. I got the first part right, and the second, wrong.

                              ENFORCEMENT

    Few elements are more basic to Budget systems than enforcement. 
Under the Budget Act, Congress has tried, in several different ways to 
enforce its Budget, but the results of the enforcement mechanisms used, 
described charitably, have been mixed.
    In 1974, many important Members of Congress expected that the 
Reconciliation Process might never be used. Most hoped it would not. In 
1980, Congress tried it for the first time, and survived. So the 
process was not an unknown when it was employed in 1981 with reasonable 
effectiveness to impose spending reductions suggested by President 
Reagan. Naturally, the Congress, authorizers, taxers, and appropriators 
alike, hated the experience.
    Not the least of the complaints was that the Congress was obliged 
to use its own process to enact, not its own priorities, but those of 
the President. And that, of course, happened again in the 1993 with the 
Clinton Economic Agenda, and in 2001 with the Bush Tax Cuts. On the 
latter two occasions, the Congressional majority was of the same Party 
as the President, so complaints were noticeably fewer.
    The experiments with Gramm-Rudman-Hollings sequesters were 
exciting, but there was precious little enforcement. Whenever a 
sequester threatened, the Congress found a way to dodge the bullet. I 
suspect that this will always be true because ultimately Congress 
cannot, and usually will not, be bound. Stated another way, Congress 
can't even keep it promises to itself.
    Even the Spending Caps and Pay-Go systems can ultimately be 
defeated, waived, ignored or allowed to expire each time Congress 
finds, as it inevitably does, that spending needs are compelling, or 
tax cuts are irresistible. My notion here is that Congress should build 
as many of these enforcement mechanisms as possible into the Budget 
process, with the hope that some of them may help sometime, but with 
understanding that all together they will seldom be helpful in 
controlling spending, or in enforcing Budgeteers' dreams.

                              ENTITLEMENTS

    Entitlements were large and growing in the early 1970s, but 
Congress did not see them as a problem. The Budget Act did provide a 
regular opportunity for Congress to review the growing entitlement 
programs, but few people in 1974 harbored any inclinations about making 
changes or even doing any real oversight. Later Congresses had similar 
feelings. Today entitlement review has seems even less appealing.
    The ``third rails'' of Social Security and Medicare have proved 
highly resistant to oversight and change. Congress was willing to make 
many small adjustments to reduce Medicare expenses in the 1980s, but 
none of them were important in the cosmic scheme of things. The big 
changes have all been increases.
    Without the Budget Act, there is no way to make Congress address 
the Entitlement programs unless the country runs out of money. But 
there is no immediate prospect that Congress will use the Budget 
Process to take a serious look at the two big entitlements, or any 
other ones, either now or in the near future.
    Review of entitlements ought to be mandated. Sunsets would help. 
But, whatever the rules, there is little reason to believe that 
Congress would want, or dare, to take them on. The Budget Act gave 
Congress a way to tackle them, but Congress would prefer not to do so 
until and unless the bankruptcy conditions of Social Security in1982 
and 1983 are reproduced.

                          CONGRESSIONAL AGENDA

    I would be very surprised if the people who worked on the Budget 
Act of 1974 had any idea that it would so dominate the Congressional 
agenda. Setting that agenda and work plan is one thing the Budget Act 
has accomplished. There have been some years in which the Congress 
works on little else but the Budget and the Appropriations Bills that 
flow from it. When no Budget is passed, Congress just gulps and then 
revs up the spending machine.
    Much of the criticism of the Budget process is that it has 
overwhelmed the legislative process. To me that is a positive 
development. The budget provides coherence and order to the process. 
The legislative process needed some order and discipline. Prior to 
1974, each committee worked on whatever it felt like working on, unless 
the majority leadership could persuade it to handle pressing issues. 
The result was not exactly whimsical, but neither was it in any sense 
orderly.
    Today, committees may feel that they would like to get out from 
under the Budget, but at least there is some system and plan than 
governs their actions. I don't believe that this was expected in 1974, 
but it is the one way in which the Act has had a real effect on the 
Congress.

                               CONCLUSION

    In general, I have to celebrate the courage and success of the 
``framers'' of the Budget Act. They were visionaries who wanted a 
stronger law, but produced the best one possible in the environment 
that existed in 1974. They were astonishingly successful, given the 
conditions prevailing at the time.
    The Act was passed by a majority of Members of both Parties, many 
or most of whom hoped that it represented the least change that could 
then be accepted. They were right. It did not, and could not, produce 
the results that outside observers expected from a Budget process.
    The ``framers'' knew it was not enough, but they hoped it could be 
developed through later years. It is the fault of those of us who 
followed that the Act has not been improved significantly. Like all 
organizations, the change-resistant Congress avoids risk and stays with 
processes and jurisdictions it knows, and likes.
    Of the things we would like the Budget to do--restore Congressional 
control, set priorities, control spending, enforce limits, address 
entitlements, and set the Congressional agenda--only the last has been 
realized. To achieve the other purposes of Budgeting, substantial 
changes must be made in the Budget Act. But even more fundamental 
changes must be made in the attitude of Congress about its willingness 
to submit to fiscal discipline.

    To set priorities--The majority must be willing to lead, and 
Congress must be willing to take risks. The baseline does not have to 
be scrapped, but major alterations will be needed from time to time.
    To control spending, and enforce Budget limits--Control and 
enforcement mechanisms are available. Congress has to enshrine them in 
law, and use them.
    To review entitlements--The Congress could do it anytime, but 
without a forcing event, like bankruptcy or sunset, It probably won't 
get done.

    Budgeteers have tried for years to do all these things, but every 
year conventional Congressional wisdom easily defeats what seem to me 
to be desirable changes. It will take strong, dedicated, optimistic 
Budgeteers to stay the course and, ultimately, carry the day. I hope 
there are some left.

    Chairman Nussle. Professor Schick, welcome back to the 
committee. We are pleased to receive your testimony.

  STATEMENT OF ALLEN SCHICK, PH.D., PROFESSOR, UNIVERSITY OF 
                            MARYLAND

    Mr. Schick. Thank you very much, Mr. Chairman. I am pleased 
to be here because I was a midwife at the creation of the 
process 30 years ago. Like other midwives, what you care about 
mostly is a successful delivery; and you don't pay much 
attention to how the baby grows up and what it turns out to be.
    But, at creation, what Congress did was to establish a 
process which is like a Rorschach. It can be whatever you want 
it to be, because it does not prescribe any particular 
budgetary outcome. It is an enabling process. The process does 
every year what Congress wants it to do.
    As a consequence of this decision in 1974, the process has 
turned out differently in virtually every year, not only 
substantively in terms of spending, deficits, and revenues, but 
also in terms of how the budget resolutions move through 
Congress. It changes with shifts in the political and economic 
winds. It moves this way, that way, and that is literally what 
the Budget Act of 1974 prescribed: Let the process be what 
Congress makes of it.
    Now that itself is very hard, because Congress is beholden 
and sensitive to the American people; and our voters are 
conflicted--some people would say schizophrenic--on the budget. 
They want smaller government, and they also want bigger 
programs. The budget process, unlike appropriations, unlike 
revenue bills, has to square these contradictions in public 
opinion; and it is not easy to do so. Doing so requires a 
majority in Congress to pass the budget resolution. That has 
always been the burden of the majority party, at least in this 
Chamber. In the House, the minority party has been the loyal 
and sometimes not-so-loyal opposition to the budget resolution; 
and the majority party has had to twist arms, provide 
sweeteners, promises, and whatever else it takes to enable the 
budget resolution to make it through.
    In some years the budget resolution literally has been the 
driving force in Congress, forming, shaping, defining, and 
confining the legislative agenda; in other years it has done 
virtually nothing. Some years, it has made all the difference; 
in other years, none at all. Some years, you wouldn't notice if 
the budget resolution has not passed.
    The difference between the years in which the budget 
resolution has made all the difference and the years in which 
it has made none has almost always been defined by 
reconciliation. When there are no reconciliation instructions, 
the budget resolution merely rubber-stamps what would happen 
anyway. When there is reconciliation, the resolution has the 
opportunity to define what Congress does in that year.
    The process has gone through four distinct phases over the 
last 30 years.
    The first, launching phase, was between 1975 to 1980. 
Congress had reconciliation, but it was an entirely different 
process than was used subsequently. It was a limited process 
confined to appropriations enacted that year, in that session--
it did not work as initially intended.
    The problem in this inaugural stage of congressional 
budgeting was what to do about revenue and spending under 
existing law? That was the key problem. Regardless what the 
budget resolution specified, if legislative committees which 
have jurisdiction over existing law did nothing, then 
legislative inaction always prevailed over budgetary action. In 
other words, the budget resolution specified the amount of 
revenues and spending, but what mattered really was what 
existing law dictated.
    Congress in this first stage from 1975 to 1980 lacked a 
means of changing existing law. That led to reorienting the 
reconciliation process from that year's appropriations to 
existing law, thereby opening the second stage of the 
congressional budget process that lasted from 1980 to 1990. 
During this period, reconciliation appeared almost every year 
in the budget resolution. In some years, as Mr. Frenzel 
indicated, such as 1981, reconciliation had a truly significant 
impact. In other years, reconciliation made only slight changes 
in existing law. But in most of the years of that decade there 
were reconciliation instructions, there was a reconciliation 
bill, and that was an empowering feature for the budget 
committees and the budget process.
    The third stage occurred during the 1990s, when Congress 
actually changed the charter of congressional budgeting. In 
contrast to the original concept, which was that Congress could 
do whatever it wanted, whatever the majority voted, the Budget 
Enforcement Act of 1990 tied the hands of Congress through 
discretionary spending caps and PAYGO rules. The budget process 
was turned into a means of implementing the pre-made decisions 
of the Budget Enforcement Act of 1990. That was the period, as 
Mr. Spratt indicated, that the budget process turned deficits 
into surpluses.
    Once the surplus arrived, Congress changed its behavior, 
not only Congress but the President certainly as well. The BEA 
(Bureau of Economic Analysis) rules remained the same; they 
lasted until 2002, but enforcement of those rules withered with 
the arrival of budget surpluses. Both Congress and the 
President found means--such as emergency legislation, advanced 
appropriations, and other tricks of the trade, to spend more 
and tax less, while pretending to live within the rules.
    The final current stage, began in 2001 with disabling and 
then expiration of the BEA rules and use of reconciliation 
almost entirely exclusively for revenue legislation and, as the 
committee members know, for cutting rather than increasing 
revenues.
    So these are the four stages of the budget process.
    Looking back at them, we can draw half dozen conclusions 
about what the process has accomplished; my bottom line is the 
budget process has changed Congress more than it has changed 
budgetary outcomes.
    First, it has contributed to elevated partisanship and 
conflict. I am not going to claim that the budget process is 
the sole reason for this escalation of conflict. Polarization 
in Congress between the two parties has many causes. But 
clearly the fact that Members are voting on the budget 
aggregates, especially the surplus or deficit, and are voting 
on whether to cut the deficit by trimming spending or by 
boosting taxes, has fueled political strife. These are great 
divides between the parties. They are things that Democrats and 
Republicans fight about, in contrast to line items, which are 
things you deal with in appropriation bills.
    Notice the different voting patterns on appropriations and 
budget resolutions. Budget resolutions squeak through with few 
votes to spare, with the minority voting against and the 
majority hoping that it does not have too many defections. In 
contrast, many appropriations bills pass by lopsided majority. 
There is something in an appropriation bill for just about 
everyone.
    Since my task today is not to make any specific 
recommendations, I am not going to recommend that we turn the 
budget resolutions into a vehicle for earmarks. But if you did, 
Congress would pass different budget resolutions that would 
have both parties' fingerprints on the final version and might 
even pass by a vote of 410 to 19, something like that, 
everybody would regard the budget process as a success.
    Second, the budget process has led to an enlarged role of 
party leaders. Again, there are other factors at play, but the 
role of party leaders in this Chamber and in the Senate is far 
greater on substantive matters, on actual revenue and spending 
decisions today than it was three decades ago.
    At the start of the process 30 years ago party leaders 
concentrated on counting and corralling the votes. Today, they 
cut some of the major deals, and dictate some of the major 
terms of the budget resolution. We have had in this committee 
and in others as well a transfer of legislative power from 
committees and their chairs to party leaders.
    Third, echoing what Mr. Frenzel said: In some sessions, 
budget-related measures have crowded out other legislation. The 
great losers in the budget process have been authorizing 
legislation and their committees. The volume of free-standing 
authorizing legislation has significantly dropped over the last 
30 years. In some years, one can count on the fingers of a hand 
the major pieces of authorizing legislation that have made it 
through Congress. There are factors other than the budget 
resolution which account for this trend; the most important is 
recourse to omnibus legislation, including omnibus 
reconciliation bills.
    Fourth, House/Senate differences have become more 
pronounced, particularly in recent years, and these have been 
the main factor in some years that Congress has failed to 
complete action on a budget resolution. On many matters, the 
House and Senate are pulling in different directions. Maybe I 
should phrase it a little differently. The majority party of 
the House and Senate are pulling in different directions, and 
that has complicated passage of a budget resolution.
    Fifth, in some years, scoring has swallowed up the budget 
process. It would not be an overstatement to say that 
congressional budgeting has turned mostly into a scoring 
exercise, and that has elevated the importance of baselines. It 
The Congressional Budget Office, CBO, has become the high 
priest, so to speak, of the scoring process. It has created a 
cottage industry on Capitol Hill and in the K Street corridor 
on how you structure legislation to get the score that you 
want. Provisions are phased in or then sunseted, back-loaded, 
or front-loaded so that CBO produces the score that you want. 
This practice is highly damaging, I believe, to the legitimacy 
of congressional budget process. I don't have a solution for 
it, but basically we have empowered the scorers of the process, 
rather than the makers of policy.
    That leads to my next point, which is that baselines are 
not neutral ways of counting budgetary matters. They have 
exerted a strong influence on budgetary outcomes. Mr. Frenzel 
noted in his statement that the baseline has reinforced the 
innate incrementalism in the process and made it more difficult 
to change programs. I believe that baselines have had an even 
stronger influence; they have made it more difficult to cut 
spending. It is as simple as that.
    The Medicaid issue in this year's budget resolution 
illustrates how baselines affect budget decisions. Suppose the 
headlines in the papers would have read that over the next 5 
years, annual Medicaid spending will rise by more than $100 
billion. Cutting it would have been much easier. As a matter of 
fact, the governors have come up with a plan to cut more than 
the $10 billion than the budget resolution specified. But 
because the baseline builds in spending increases, it is 
exceedingly difficult to cut $10 billion. As you know, the task 
is much more complicated in the Senate than in this Chamber. 
The construction of the baseline may be neutral, but use of the 
baseline is rarely neutral in congressional budget outcomes.
    Because of the prominence of scoring, even in years that 
the budget process has languished in Congress, CBO has 
flourished. CBO and the budget process were created in the same 
law, but CBO is always high on the pedestal. I described it a 
little while ago as the high priest of congressional budgeting. 
It does the score keeping; it maintains the baseline. CBO has 
performed these tasks with integrity, with professionalism, but 
it is wrong in denying that it is a player in the process.
    Finally, the budget process has strengthened the 
President's capacity to influence congressional decisions. I 
recall the scene on the floor of the House in 1973 and 1974 
where Members of Congress described the new process as a 
declaration of budgetary independence from the President. 
Things have not worked out that way. The budget process has 
given the President a cordon sanitaire to move his priorities 
and his programs through Congress. That has largely been done 
through the reconciliation process. Most reconciliation bills 
reflect the demands of the President on Congress.
    In one way, reconciliation itself has been a powerful tool 
of Congress, in one other way a weak or inadequate tool. It is 
weak in that reconciliation is almost entirely a means of 
changing the financing of programs, but not substantive policy.
    Let us take Medicare, which has been the most reconciled 
program over the last 20 years. There have been thousands of 
changes to Medicare enacted in reconciliation bills. Almost all 
have been financing changes, such as adjustments to the 
premiums under part B, and adjustments of payments to 
providers. But with the exception perhaps of 1997, when home 
care was significantly changed under the reconciliation 
legislation, the programmatic structure of Medicare has 
remained intact.
    Now there is a reason why reconciliation cannot itself 
change programs, and that is because its time frame is too 
abbreviated. The typical reconciliation instructions give 
committees only a few weeks to recommend legislation that meets 
the require ``score.'' So the inevitable incentive of 
committees rescoring to reconciliation is to find financing 
changes that satisfy the reconciliation instructions. 
Committees don't have the leisure, the incentive, or the 
opportunity to take a hard, deeper look at the program and 
decide how it should be restructured.
    That is not necessarily a criticism of reconciliation. 
Because if reconciliation were able to drive those deeper 
changes, then indeed it would shape not only the agenda of 
Congress but its legislative output as well, and I think that 
would be an undesirable concentration of legislative power and 
activity in a single process.
    So here we have it, Mr. Chairman. Congress has been living 
with the process for 30 years. Thirty years ago, the question 
was, will it survive? Today, the question is, is it worth 
surviving?
    Thank you.
    Chairman Nussle. Thank you, Professor Schick.
    [The prepared statement of Allen Schick follows:]

  Prepared Statement of Allen Schick, Ph.D., Professor, University of 
                                Maryland

    Mr. Chairman, it is a pleasure to testify at these hearings and to 
provide historical perspective and reflections on the evolution of the 
congressional budget process during the past 30 years. Having been a 
midwife at the creation of the Budget Committees, I recall the heady 
optimism of the early years of the new process, and have witnessed the 
ups and downs of congressional budgeting over the years. In fact, the 
concluding chapter of one of my books was initially labeled ``The 
Manic-Depressive Budget Process''. Of course, the editor objected that 
people are manic-depressive, not processes. My reply was, ``You 
obviously haven't observed congressional budgeting.''
    Congressional budgeting is a somewhat different process every year 
because fiscal and political conditions vary from 1 year to the next. 
One year, fiscal austerity is the dominant sentiment, another it is to 
finance the unmet needs of the American people. One year, Congress and 
the President have the same budget priorities, the next they diverge. 
The outward shell of the process--a concurrent resolution on the 
budget--has persisted through three decades, but the way Congress uses 
its budget tools has changed. Looking back at the history of this 
Committee, one can identify four distinct phases of congressional 
budgeting. The first stage inaugurated the process and established 
budgeting as an ongoing responsibility of Congress. The second added 
reconciliation and targeted deficit reduction as the number one 
priority. The third saw congressional budgeting enveloped in preset 
rules, the Gramm-Rudman-Hollings laws of 1985 and 1987, and the Budget 
Enforcement Act of 1990. The current state sees congressional budgeting 
principally as a vehicle for reconciliation and for adjusting annual 
spending limits. Each state has left imprints on congressional 
budgeting; today's process is an amalgam of developments over the past 
three decades.
    (1) Getting Started (1987-80). The first stage was characterized by 
the building of new budget institutions and the adoption of budget 
resolutions as an expression of congressional independence from the 
President and its responsibility for budget policy. The new process did 
not dictate any particular budget outcome. It did not require Congress 
to balance the budget, nor did it prescribe revenue or spending levels. 
It permitted Congress to take any action a majority wanted, provided it 
acted within the framework of the budget process. The architects of the 
Congressional Budget Act assumed that a responsible Congress would 
require the Federal Government to operate within its means. But this 
aspiration was dashed by the economic adversities which coincided with 
the launch of congressional budgeting.
    Party line voting emerged early in the House. The very first budget 
resolution it produced (for fiscal 1976) squeaked through 200-196. The 
majority party carried the full burden of corralling enough votes to 
get the resolution through, with almost all minority Members voting 
against adoption. majority party leaders intervened to assure passage, 
but their main role was to persuade recalcitrant Members to back the 
process, even if their main role was to persuade recalcitrant Members 
to back the process, even if they didn't approve of the policies 
expressed in the budget resolution. This was not an easy chore, for 
adopting the resolution meant that the majority party--the Democrats in 
those days--had to vote for chronic budget deficits. They had to do so 
at least two times a year because the original Budget Act provided for 
both a Spring resolution before appropriations were considered and a 
Fall resolution, after appropriations bills were enacted.
    During the early years, the Senate took a bipartisan approach, with 
Democrats and Republicans joining ranks to support the nascent Budget 
Committee. This show of support enabled the Senate Budget Committee to 
challenge other committees when they disregarded the policies set in 
the budget resolution. Yet the new process had one fundamental 
weakness: it did not regulate the revenues or spending generated by 
existing laws, even when these amounts varied from the levels specified 
in the budget resolution. Legislative committees frequently thwarted 
the budget process by doing nothing. Legislative inaction triumphed 
over budget action.
    (2) Budgeting with Reconciliation (1980-90). In 1980, Congress 
responded to this problem by redeploying the reconciliation process. As 
envisioned in the Budget Act, reconciliation was to come into play in 
tandem with the Fall budget resolution. It would adjust amounts in 
appropriations and other measures that were at variance with the levels 
set in the budget resolution. Because of its narrow scope, 
reconciliation was limited to 20 hours of floor time in the Senate. 
This form of reconciliation proved unworkable, for it was impractical 
for Congress to roll back expenditures that it had approved only weeks 
earlier in appropriations bills.
    Congress transformed reconciliation in 1980 by attaching it to the 
first rather than the second resolution, and thereby reoriented it from 
dealing with that years' legislation to dealing with revenue and 
spending under existing law. The budget resolution came to be regarded 
as a key instrument in combating high budget deficits. Congressional 
independence receded in importance, and the President gained a powerful 
tool for influencing legislative action. In 1981, Ronald Reagan 
adroitly used reconciliation to reshape Federal tax and spending 
policies.
    Reconciliation boosted the budget process, but it alarmed many 
other legislative committees which were concerned that it would empower 
the Budget Committees to dictate what they did. The chairs of almost 
all House committees voiced their opposition to reconciliation in an 
open letter to the Speaker. Over time, however, many committees came to 
view reconciliation as a vehicle for legislation that could not be 
passed in free-standing bills. The Senate responded to this tendency by 
adopting the Byrd Rule, which limits the types of provisions in 
reconciliation bills. It is a complex rule that Senate conferees often 
use to their advantage in resolving differences in reconciliation bills 
passed by the two chambers.
    Shifting reconciliation to the first budget resolution rendered it 
useless for Congress to adopt a second resolution, and this measure was 
discarded in amendments to the Budget Act. Reconciliation (and other 
factors) spurred Congress to lengthen the time horizon of the 
resolution. Initially set at only 1 year, the time frame was stretched 
to 3 years, then five, and after several adjustments to 10 years. This 
time frame has become the standard used by CBO in constructing baseline 
budget projections.
    Reconciliation probably contributed to political polarization in 
Congress, especially in the Senate which previously has bipartisan 
cooperation on budget resolutions. Reconciliation was used to make 
major changes in revenue and spending policies, matters on which the 
two parties often disagree. One should note, however, that polarization 
has been fed by multiple factors, and that it probably would have 
occurred even if Congress had not broadened its budget process.
    (3) Budget Enforcement (1990-2000). The discretionary caps and 
PAYGO rules enacted in 1990 substituted fixed constraints for 
congressional discretion. In contrast to the original design, which 
empowered Congress to adopt any budget policy supported by majorities 
in the House and Senate, the BEA rules restricted Congress' power to 
appropriate and legislate changes in revenue or mandatory spending 
legislation. With key elements of budget policy fixed in law, the 
budget resolution came to be regarded as a means of facilitating 
passage of reconciliation bills. In some years, the budget resolution 
was crammed with ``sense'' of the House of Senate statements that had 
political value, but did not influence legislative action.
    During this period, the budget process was the most important 
action taken by Congress in some years, and among the least important 
in others. In some years, it made all the difference, in others none 
whatsoever. The budget resolution drove the legislative agenda when it 
contained reconciliation instructions; it merely rubber stamped what 
would have happened even if Congress did not adopt a resolution. 
Through reconciliation, the resolution reshaped budget policy in 1990, 
1993, and 1997. (President Clinton vetoed a 1995 reconciliation bill 
passed by Congress.) There was no reconciliation bill in 1998 and, for 
the first time since the budget process was introduced, Congress failed 
to adopt a budget resolution.
    Both BEA and reconciliation require Congress to score the budgetary 
impact of legislative actions. In some years, scoring has been the 
dominant feature of congressional budgeting, impelling committees and 
Members to configure legislation so as to get favorable scores. Some 
observers believe that scoring has diminished attention to the 
substantive implications of budget policy; others are concerned that 
budgetary legerdemain has impaired the credibility of the process. 
Scoring determines the fate of legislation and has made much of 
budgeting into an arcane exercise. Generations from now, the Medicare 
``donut'' will be a testament to the power of the scorekeepers.
    (4) Budgeting for tax cuts (2001- ). Since 2001, the foremost 
purpose of congressional budgeting has been to facilitate enactment of 
tax cuts through the reconciliation process. With expiration of BEA, 
the House or the Senate have used the resolution to cap discretionary 
spending or to impose some form of PAYGO.
    Differences between the House and Senate have become more prominent 
in recent years, and partisan fissures have deepened. In some years, 
the two chambers have been unable to resolve differences in conference, 
and have gone their separate ways by adopting ``deeming'' resolutions 
in lieu of a regular resolution. This device has preserved the budget 
process, but it is a poor substitute for the real thing. The more they 
rely on deeming resolutions, the less incentive the House and Senate 
have to hammer out budget policy that is endorsed by both chambers. 
There may no loss of enforcement when each chamber goes it alone, but 
there is a loss of legitimacy.
    Over the years, party leaders have become dominant players in 
congressional budgeting. The majority leadership has the burden of 
producing sufficient votes to pass the resolution. The House Budget 
Committee is beholden to the leadership and has less margin for 
independence than its Senate counterpart. In the House, Party leaders 
cut key deals and dictate many of the terms that produce the votes 
needed for passage. This pattern has spread to other areas of 
legislative activity, and has as much to do with the contemporary 
structure of the House as with characteristics of the budget process.
         what the budget process has (and has not) accomplished
    A fair assessment of the budget process must take account of both 
the objectives of the 1974 Act and the transformation of the U.S. 
economy and Congress that began just about the time that the process 
was launched. Evidently, the process did not put an end to deficit 
spending, nor did it halt the rise in mandatory entitlements. Using 
these outcomes as measures of budgetary success or failure would be 
unfair because the budget process cannot do what Congress does not want 
it to do, and Congress itself cannot do what voters do not want. Beset 
by conflicts in Congress and contradictions in public opinion, 
budgeting has muddled through under an implicit contract that the 
necessary votes will be forthcoming to pass the resolution provided 
that ongoing programs are preserved. When the needed votes appear 
lacking, the resolution is sweetened by accommodating additional 
spending. In several recent years, this implicit contract has broken 
down, because of conflict between the House and Senate or within the 
ranks of the majority party.
    In budgeting, Congress must navigate through the minefields of 
public opinion, trying to reconcile the inconsistent demands of voters 
who want both smaller government and bigger programs. The task is 
easier when the economy is buoyant and revenues are trending upward. 
When these favorable conditions are absent, Congress usually prefers to 
spare contested programs, even if the result is a bigger deficit. With 
these overall conclusions as background, let us consider three inter-
connected questions: (1) What has been the impact of the budget process 
on budget outcomes? (2) What has been the impact on the conduct of 
budgeting, including relations between Congress and the President? (3) 
What has been the impact on Congress, including relations between the 
House and Senate, the role of party Leaders, the overall level of 
conflict within Congress, and relations between the Budget Committees 
and other committees?
    Budget Outcomes. The Budget Act empowered Congress to take a 
comprehensive view of Federal revenue and spending; it did so by 
requiring the House and Senate to explicitly vote on total revenue, 
total spending, the public debt, and the surplus or deficit. Before the 
Budget Act, the totals were merely the arithmetic sums of past and 
current decisions. The totals were not voted, nor were they explicitly 
taken into account when the House or Senate acted on revenue and 
spending measures.
    Budget totals are an amalgam of old and new decisions. At times, 
Congress has effectively used the budget process to drive policy 
changes in revenue or spending through the House and Senate. In 
general, the policy changes voted in the budget resolution have been 
more dramatic on the revenue side of the ledger than on expenditures. 
Major changes in revenue were triggered by the budget resolution in 
1981, 1990, 1993, 2001, and 2004. Smaller changes were driven through 
Congress in half a dozen other years. Some of the changes have boosted 
revenues, others have cut them. While the substantive merits of tax 
legislative are almost always maters that divide the two parties, there 
can be no doubt that the budget process has facilitated major shifts in 
revenue policy that might have been more difficult to enact if Congress 
had lacked this device.
    The spending side of the budget has exhibited much more stability. 
Congress has been no more successful than the President in curbing 
incrementalism in Federal spending. Both discretionary and direct 
spending exhibit incremental tendencies, but it is useful to 
distinguish them in assessing Congress' control of the purse. Through 
the budget process, Congress has effectively decided the annual amount 
of increase in discretionary appropriations. Aided by BEA rules during 
the 1990s, the budget resolution limited the increase to the amount 
allowed by the spending caps. It is instructive, however, that with the 
arrival of budget surpluses in 1998, Congress changed its behavior, 
even though the BEA rules remained on the books for another 4 years. 
Congress, on its own initiative or prodded by the President, 
accommodated more spending in the budget resolution than BEA provided, 
using the emergency escape route and other bookkeeping devices to stay 
within the rules while breaching them. Budget rules and the budget 
process made a difference, but only when they were reinforced by 
political will in the executive and legislative branches.
    Discretionary spending has been effectively regulated through 
section 302 allocations to the Appropriations Committee, each of which 
subdivides available amounts among its subcommittees. There is no 
comparable process for direct spending, almost all of which is 
accounted by mandatory entitlements which are controlled by statutory 
formulas and eligibility rules. The fundamental difference between the 
two types of spending is that discretionary expenditure requires annual 
appropriations while mandatory expenditures, including increases above 
the previous year's level, occur even if Congress does nothing.
    As noted earlier, Congress reoriented reconciliation in 1980 to 
deal with this problem. But while reconciliation has been deployed 
frequently to change the amount spent on particular entitlements, 
especially Medicare and Medicaid, it has rarely been used to change the 
structure of programs. Most reconciliation-driven changes have been 
financial adjustments, such as increases in Part B Medicare premiums 
and decreases in payments to providers. Reconciliation's time frame--
typically a few weeks between adoption of the budget resolution and 
committee recommendations--does not allow a serious review of complex 
programs.
    Entitlements are a significantly larger share of total Federal 
spending today than they were 30 years ago. Most budget projections 
show their share rising over the next 30 years if current law remains 
intact. PAYGO has been a reasonably effective means of regulating new 
or expanded entitlements; it has had no effect on the incessant rise in 
spending under existing law. There is a fundamental reason for this, 
which goes beyond the machinery of budgeting to relations between 
government and citizens. Most entitlements are a voluntary surrender of 
budget control by the executive branch and Congress in order than 
citizens have strong, credible commitments from government that they 
will receive promised financial assistance when they are old, disabled, 
ill, unemployed, and so on. This tradeoff tells us that in the 
political coin of the United States, protecting the financial security 
of American households is deemed more valuable than upholding budget 
control. Because this is a political ``contract'', it can be undone 
only when Congress and the President have the political will to change 
its terms.
    Congress has had occasional success in dealing with deficits, but 
the evidence is that the shortfall must be quite large before it acts. 
Deficit spending has been the norm in 26 of the Budget Act's 30 years, 
and it is likely to be the outcome for quite a few more years. The ill-
fated Gramm-Rudman-Hollings laws taught us that Congress cannot control 
the deficit unless it takes effective steps to regulate revenue and 
expenditures. But Gramm-Rudman-Hollings was not a fair test of deficit 
control because it was not coupled with revenue and spending controls. 
This may be the most effective formula for taming big deficits.
    Not all budget deficits are alike. Some occur when the economy is 
weak, others when it is strong. Some shortfalls are truly small and 
have no measurable impact on financial markets, others are quite large 
and expose the United States to serious financial risks. The fact that 
the current bout of deficit spending has occurred at a time of low (and 
sometimes declining) interest rates has made it difficult to get 
political leaders to see it as a problem. Moreover, a body of economic 
literature argues that deficits matter less than marginal tax rates, 
and that it would be preferable to have a smaller government with a 
bigger deficit than a bigger government with a small deficit. With 
analysts and political leaders divided on this issue, and Americans not 
yet regarding deficits as urgent, Congress has not paid attention.
    The Conduct of Budgeting. The budget resolution is more than a mere 
``sense of the Congress'' resolution, but less than a full-blown 
budget. Nothing has to stop if Congress fails to complete action on the 
resolution. When it is adopted, as has happened in all but a few years, 
the budget resolution guides section 302 allocations and 
reconciliation. President Bush has proposed that the budget resolution 
be enacted as a joint (rather than concurrent) resolution. If adopted, 
this change would make the President a formal partner in Congress' 
budget process. The present role of the President is informal and 
political, and arises out of the fact that he can veto appropriations 
and reconciliations bills, as well as other budget-related measures 
passed by Congress. The President already exerts considerable influence 
on congressional budgeting, and in some years he is the dominant 
player. The exuberant hopes of 1974 that the budget resolution would be 
a declaration of congressional independence from the White House have 
been dashed by the realities of American politics.
    Yet, even as a political partner, the President does not get all 
that he wants. The budget resolution impelled Congress to make 
significant changes in the tax cuts enacted in 2001 and 2004 and in the 
Medicare expansions enacted in 2003. Formalizing the President's budget 
role through a joint resolution is likely to have collateral effects 
that go well beyond relations between the two branches. One should not 
be surprised if a joint budget resolution were to become a vehicle for 
other legislation, or if conflict between the two branches would block 
final passage.
    Congress now has much more budgetary information than it had prior 
to the 1974 Act. CBO has become an authoritative, independent source of 
data and analysis for Congress, and scoring has given Congress timely 
estimates on budget impacts before it acts. In budgeting, ignorance is 
not bliss, but information does not by itself change what Congress 
does. Yet there are instances where the supply of new types of budget 
information has almost certainly changed legislative behavior. Foremost 
is the baseline methodology used by COB to project the revenue, 
spending or deficit impact of pending or completed legislative actions. 
This is not the place for assessing the baseline's importance as 
Congress' measuring rod, but there can be no doubt that the baseline 
has not been a neutral device. Even though the underlying methodology 
may be neutral, the uses to which baselines are put are not.
    Timing is a critical element in budgeting, if only because the 
process recurs each year. In some years, long delays in finalizing the 
budget resolution have allegedly held up action on other measures. 
These delays are often due to conflict within Congress and difficulty 
faced by the Budget Committees and party leaders in securing the votes 
needed for passage. Inertia has also taken a toll, as have political 
decisions to defer contentious issues until late in the session. This 
year's accelerated schedule shows that the House can operate within the 
prescribed budget calendar.
    Impacts on Congress. The budget process has changed Congress more 
than Congress has changed the way it budgets. The budget process has 
contributed to elevated conflict in Congress, while boosting (as 
already discussed) the role of Party Leaders. It also has complicated 
relations between the Budget Committees and other congressional 
committees.
    Congressional budgeting frames the legislative agenda for each 
session, compelling leaders to set aside blocks of time for the budget 
resolution and any ensuing reconciliation bill, the various 
appropriations bills, revenue measures, and other budget-related 
legislation. Nowadays, Congress produces many fewer free-standing 
public laws than it once did. Elevated conflict is the main culprit, 
but the time demands of congressional budgeting also have crowded out 
much authorizing legislation. In the contemporary Congress, it may be 
easier to pass an omnibus bill that sprawls over more than a thousand 
Statute pages and covers dozens of topics, than to obtain approval of a 
bill that pertains to only one subject.
    Members of Congress complain about the budgetization of legislative 
debate; that is, defining issues and producing measures in terms of 
their budget impacts rather than their substantive objectives. This 
complaint may be overstated, but there is little doubt, as I previously 
suggested, that scoring determines the fate of much legislation. 
Sometimes, it appears, the score is the only thing that matters, as 
Members and lobbyists vie to get a score that will facilitate passage. 
By now, insiders are well versed in the tricks of the trade, how to 
adroitly use sunsets (or phase-ins and phase-outs) to generate a 
favorable score, how to show tax cuts as revenue increases by front-
loading provisions that add revenue and backloading those that subtract 
revenue. I am not criticizing the way the game is played, but I do wish 
it did not have to be played at all.
    It is not hard to figure out that congressional budgeting fuels 
friction within the House and Senate. In most years, most 
appropriations bills pass by lopsided margins, while the budget 
resolution makes it through with few votes to spare. Appropriations 
bills disaggregate spending issues into line items, the budget 
resolution aggregates them into fiscal totals. Democrats and 
Republicans, liberals and conservatives who disagree on the aggregates 
often agree on the line items, either because they logroll one another 
or because they favor the spending item. Democrats and Republicans do 
disagree on whether the budget deficit should be reduced by raising 
taxes or trimming expenditures. They cannot paper over these conflicts 
by layering the budget resolution with earmarks, as they do on 
appropriations bills.
    Escalation of budgetary conflict affects not only the political 
parties, but relations between the House and Senate as well. In some 
years, the House and Senate passed different resolutions and could not 
patch over their disagreements in conference. The deeming resolution 
mentioned earlier are an artful device that enables each chamber to go 
its own way.

                          CONCLUDING THOUGHTS

    The budget process has survived because enough Members want it to 
and because the majority leadership invests it with enough support to 
pull the resolution through. This is not the ideal situation for 
congressional budgeting, but it will have to do until the process is 
redesigned or Members get more enthusiastic. One should not expect a 
reformed process to function much differently than the current one, 
though adorning it with BEA-type rules can lessen conflict by pre-
deciding some key issues. A Government that takes in and spends more 
than $2 trillion every year needs a budget process to structure and 
discipline congressional decisions. Having a more tranquil process 
might help a bit, but with so much at stake each year, one should not 
be surprised if the budget process continues to limp along for another 
three decades.

    Chairman Nussle. Richard Kogan, welcome back to the 
committee. How many years did you work here?
    Mr. Kogan. I was on the majority staff for 16 years and the 
minority staff for 4 years, for a total of 20. But it was the 
same staff in each case.
    Chairman Nussle. Well, welcome back to the committee; and 
we are pleased to receive your testimony.

STATEMENT OF RICHARD KOGAN, SENIOR FELLOW, CENTER ON BUDGET AND 
                       POLICY PRIORITIES

    Mr. Kogan. Mr. Chairman, I am very glad to be home. Mr. 
Chairman, Mr. Spratt, it is very nice to see you again. As I 
said to Tom Kahn when I submitted this testimony, I have 
material in here that is bound to annoy virtually everybody, 
proving my fierce bipartisanship.
    I would also like to start with two disclaimers. The first 
is that, while I work for the Center on Budget and Policy 
Priorities, these views are my own and not necessarily those of 
the Center; and the second is that Allen Schick and I did not 
collaborate on any of our testimony but nonetheless reached 
somewhat similar conclusions.
    I would also like to say that I have ignored the request 
not to make recommendations, but I suppose you knew that about 
me before I was invited.
    I have three main points that I would like to make in my 
testimony.
    First, the congressional budget process was originally 
designed to make Congress an equal partner with the President 
when it comes to budgeting; and unless you think that 
presidents are too weak and Congress is too powerful, I 
encourage you to resist the many budget process proposals that 
would strengthen the President and weaken Congress.
    Second, the Congressional Budget Act has, probably 
unexpectedly, allowed presidents to get away with budgets that 
are incomplete or irresponsible or both. President Bush is 
especially guilty of this lack of leadership, but every recent 
President has designed partially phony budgets and then passed 
the buck to Congress, dumped it in your lap.
    Third, no budget process can force the President and 
Congress to enact deficit reduction. Rather than trying to do 
that, it is far better to design specific deficit reduction 
plans--increases in taxes, cuts in programs--and then use the 
budget process to enforce compliance with those plans, to 
prevent backsliding after those plans are implemented.
    OK, I am going to elaborate on these three points. So let 
me start with the first one, the relationship between the 
President and the Congress.
    When the Budget Act was enacted in 1974, its intent was to 
announce that the President's budget was not the only game in 
town; Congress could devise and adhere to its own budget plan. 
Given this history and intent, it seems strange to me and 
probably inappropriate for Members of Congress to deliberately 
design reform plans that would weaken the Congress vis-a-vis 
the President.
    I am just going to mention a number of ideas that have been 
suggested in recent years that would have that effect; and if 
you want know more about them, I describe them in my written 
testimony.
    One that would do this would be an automatic continuing 
resolution. Another would be a joint budget resolution. A 
third, in a more obscure way, would be the appropriations 
lockbox. Fourth would be biennial budgeting. Fifth would be any 
combination of line-item vetoes, enhanced rescission, or 
restrictions on omnibus legislation. All of these ideas would 
strengthen the President and weaken Congress; and my normal 
question to any of you, regardless of party, is why would you 
want to do that?
    But let us move on to my second point, which could be an 
answer to the question of why you might want to do that.
    My second point is really a question. Has the Congressional 
Budget Act allowed the President to run and hide? History 
demonstrates that it is very hard to achieve any major deficit 
reduction without Presidential leadership. Congress can't do it 
on its own when the President is sitting there and saying, 
``Oh, I am sorry, I am planning to veto your major budget plans 
for the year.'' Currently, President Bush is in a state of 
official denial about deficits, and perhaps self-denial as 
well.
    Let me turn your attention to a table which is on page 3 of 
my testimony. This table is taken directly from this year's 
Presidential budget, but it was in an obscure document that 
perhaps the President didn't notice. It shows OMB's (Office of 
Management and Budget) long-range extrapolations of the 
President's own policies. And it shows that under those 
policies the debt held by the public would rise from its 
current level of about 39 percent of GDP to more than 100 
percent of GDP in 2050 and around 250 percent of GDP by 2075.
    Of course, this can't happen. We won't allow the United 
States to become basically held by creditors. What this table 
means is that the President's policies do not lead to an era of 
surpluses. If things are improving temporarily, and they are, 
it is a temporary improvement while we are still surrounded by 
a sea of large deficits.
    OK, given this OMB projection, there is an obvious need for 
long-term change in the fundamental structure of the budget. It 
seems to me that both tax increases and program cuts, programs 
that are dear to the hearts of Democrats and maybe Republicans, 
and tax increases, which are unpopular everywhere, are 
necessary. There won't be any deficit reduction unless 
President Bush stops denying this reality and starts to scale 
back both his own spending priorities and his own tax cuts.
    Given the difficulty of deficit reduction, a willingness to 
negotiate directly with the leaders of both parties is probably 
necessary. This is, I think, a fiercely bipartisan statement.
    Well, how does this discussion I have just had of exploding 
deficits relate to the congressional budget process? In my 
mind, one unintended consequence of congressional budgeting is 
that by repositioning the budgetary spotlight away from the 
President and onto Congress with the creation Congressional 
Budget Act and annual budget resolutions, the Budget Act has 
allowed the President--any President, all Presidents--to get 
away with increasingly irresponsible budgeting.
    You have just heard me criticize President Bush pretty 
heavily for his incomplete and disingenuous budget. But 
President Reagan had his ``magic asterisks,'' unspecified cuts 
to be proposed at a later time. The first President Bush had 
his ``flexible freeze'' and ``black box,'' which are two other 
phrases for unspecified future spending cuts. President Clinton 
frequently employed mechanical formulas with respect to his 
outyear appropriations numbers, which allowed him to deny that 
there was any policy content to those numbers while in effect 
saying, ``Here are future spending cuts which will be specified 
later,'' the same thing that President Bush and Reagan had done 
before him. And they have gotten away with it because the 
budgetary spotlight has not been focused entirely on the 
President and the press has not spent its time examining every 
nuance of the President's budget or every failure of the 
President's budget but has immediately turned its attention to 
Congress; what will Congress do next?
    To my mind, this ability of the President to avoid the 
toughest decisions has been an unfortunate side effect. I think 
the Budget Act should come with a warning on the bottle that 
says ``side effects may include loss of Presidential 
leadership. If this condition persists for more than 4 years * 
* *''
    Well, anyhow, the diagnosis poses an obvious question: Has 
the improvement in congressional budgeting been great enough to 
justify this bad side effect? My answer on balance is very 
mixed. On Mondays, Wednesdays, and Fridays I say, no, history 
suggests that good public policy is not the necessary result of 
the Congressional Budget Act. So, therefore, I am not so sure 
that there is really an improvement in congressional budgeting 
to counteract the loss of Presidential leadership.
    The Budget Act has given a determined majority more tools 
to get its way on budgetary matters. It has allowed more 
coherent budget plans to be concocted and enacted. The Budget 
Act has helped strengthen the leadership and weaken all other 
committees. The Budget Act has helped diminish the role of 
individual members as citizen legislators and diminish the role 
of committees as repositories of acknowledged expertise. So one 
result is that Congress, both the House and the Senate, are a 
giant step further from being the deliberative legislative 
bodies that they were to some extent before, and a giant step 
closer to being parliaments, in which their main role is to 
ratify decisions made by party leaders.
    Among the other side effects, the Budget Act has helped 
foster partisanship. So to put this simply, the Budget Act 
makes it easier to implement budgets, whether responsible or 
irresponsible. It has given the leadership and this committee 
stronger tools, which is like giving the military bigger and 
smarter bombs. The real question is whether it has made any of 
us wiser in the use of those tools, and my answer is: Not 
necessarily.
    OK, so as I see it, when Congress makes budgetary mistakes, 
as it did in 1981, 2000, and 2003, the Budget Act facilitates 
bigger and costlier mistakes than would otherwise be the case. 
So let me make a modest proposal. I noted in my first point 
that many budget process ideas would weaken Congress and 
strengthen the President. I concluded in my second point that 
the Budget Act has two unfortunate side effects: increased 
Presidential poltroonery and increased congressional 
partisanship, without necessarily producing better budget 
outcomes.
    My suggestion, therefore, is to take these points to their 
logical conclusion and repeal Title 3 of the Budget Act, put 
yourself out of existence, leave CBO in place, and go back to 
this system that existed from 1790 to 1974, where the President 
was the player; and most particularly from 1933 to 1974, where 
the President's budget was the budget.
    Having said that, I think it is very unlikely that this 
committee will decide to put itself out of existence; and, to 
be honest, my heart says I don't really mean what I just said. 
I served too long here. My heart is really with you, despite 
the fact that I can't convince myself that the outcomes are 
necessarily any better than they would be without you.
    So, therefore, I am backed into my third position; and my 
third position has to do with the third point I made before, 
which is that the budget process cannot force Congress and the 
President to do what they are unwilling to do but can enforce 
budget agreements once those agreements are made.
    Here again, history is a useful education. Congress enacted 
Gramm-Rudman-Hollings, which was a doomsday machine designed to 
say, ``Here are the disasters that will happen to you, 
automatic sequestration of very popular programs--veterans 
education, farm price supports, Medicare and so on--if you 
don't enact a deficit reduction plan. It is up to you to 
negotiate one.''
    Did this work? Did this make President Reagan come to the 
Democratic leadership in the House of Representatives and the 
Republican leadership in the Senate and negotiate major deficit 
reduction plans? No, it did not. What happened instead is that 
OMB engaged in official lying about budget projections to make 
it look as though they were intending to meet the targets, and, 
in fact, the budgetary targets under Gramm-Rudman-Hollings were 
missed by huge amounts, first by tens of billions of dollars a 
year, then by hundreds of billions per year.
    Once official lying of that magnitude became so great that 
people couldn't swallow it, they simply set aside Gramm-Rudman. 
The system didn't work. You can't make people raise taxes and 
cut spending if they don't want to. And you can't make them 
agree with people that they really disagree with on 
philosophical and substantive grounds if they don't want to.
    So, therefore, I would suggest that other attempts to do 
that, particularly attempts like the draconian entitlement cap 
that is in H.R. 2290 and would force approximately $2 trillion 
worth of entitlement cuts over the next 10 years, 20, or 30 
times the cuts in the congressional budget that was agreed to 
this year on in the President's budget, that is not going to 
work. Actually, from my point of view, I think my conclusion 
that it can't possibly work is good news because if it did 
work, I would hate the results.
    Saying that that sort of entitlement cap can't possibly 
work leads me to conclude that we are left with a prescription 
that says, at the very least, ``Change the congressional budget 
process so that it does no harm.'' In this regard I would go 
back to the PAYGO rules that were established in 1990, which 
say basically, stop cutting taxes, stop increasing 
entitlements. Don't do that without paying for their full 
costs.
    This suggestion has been debated enough times in recent 
years and it doesn't need elaboration, but a second related 
suggestion to it, a sort of a smaller version of it, is to stop 
using the reconciliation process--which is a fast-track 
process. This is the only sort of legislation that cannot be 
filibustered in the Senate, and which, broadly speaking, is not 
subject to open amendment in the Senate--stop using 
reconciliation to make the deficit worse. Limit reconciliation 
to its original use from 1980 through approximately 1997, when 
the net effect of each reconciliation bill was to make deficits 
smaller rather than larger; not tax cuts and entitlement 
increases in reconciliation, but the opposite. And that, I 
think, is a change that is completely consistent with the 
original thinking behind the Budget Act, though not necessarily 
the words in the Budget Act.
    I might add that I have heard that some people say that 
PAYGO rules or reconciliation restrictions of this sort don't 
need to be applied to revenues because tax cuts pay for 
themselves. This isn't true. There is a table on the back page 
of my testimony that compares various different business cycles 
since World War II on. The business cycle of the 1990s had 
economic growth that averaged 2 percent of GDP per person per 
year. The business cycle of the 1980s had economic growth that 
averaged 2 percent per year per person; the same, even though 
one was a business cycle in which there were large tax cuts at 
the beginning, and the other was a business cycle in which 
there were large tax increases at the beginning. Since the tax 
cuts or increases did not affect economic growth one way or the 
other over the entirety of cycle (though they will have had 
Keynesian short-term effects) the conclusion is that there 
isn't really much long-term feedback effect from revenue 
changes, and that, therefore, tax cuts lose revenues and tax 
increases gain revenues.
    This can be seen more directly by looking at the growth of 
revenues in the 1990s and comparing it to the growth of 
revenues in the 1980s. Specifically income tax receipts grew at 
an average of 4.2 percent per year per person in the 1990s and 
.2 percent per year per person in the 1980s. Tax cuts lose 
revenues. This is the conclusion that the ``starve the beast'' 
crowd reached. After all, there is no point in cutting taxes to 
put the Government on a starvation diet if it doesn't succeed 
in starving Government. This is where Grover Norquist is 
completely correct. Tax cuts lose revenues. (If he were wrong, 
he would probably favor tax cuts anyway, though for other 
reasons.)
    This concludes my testimony. To summarize, because my heart 
is with Congress and not with the President, I really don't 
want you to weaken yourself for the sake of strengthening him. 
I really don't want you to put yourself out of business or do 
all of those other little changes that would have the effect of 
hamstringing you and your ability to deal with the President. 
And despite the unfortunate side effects of the Congressional 
Budget Act--Presidential evasion and increased partisanship--I 
would keep the existing system. I would merely weaken its 
ability, your ability, to use the budget process to make the 
budget situation worse than it already is.
    Chairman Nussle. Thank you.
    [The prepared statement of Richard Kogan follows:]

 Prepared Statement of Richard Kogan, Senior Fellow, Center on Budget 
                         and Policy Priorities

    Mr. Chairman, Congressman Spratt, I am very pleased to be invited 
home. In my testimony today, I'd like to make three points about the 
congressional budget process and pending proposals to alter it.
    First, the congressional budget process was originally designed to 
make Congress an equal partner with the President. Unless you think 
Presidents are too weak and Congress too powerful, you should resist 
the many proposals that would weaken Congress and strengthen the 
presidency.
    Second, the Congressional Budget Act has, perhaps unexpectedly, 
allowed Presidents to get away with budgets that are incomplete, 
irresponsible, or both. President Bush is especially guilty of this 
lack of leadership, but every recent President has designed partially 
phony budgets and then passed the buck to Congress.
    Third, no budget process can force the President and Congress to 
enact deficit reduction. It is far better to design specific deficit 
reduction plans--specific program cuts and specific tax increases--and 
then use the budget process to enforce those enacted plans.
    I will now briefly elaborate on these three points.

                       CONGRESS AND THE PRESIDENT

    To begin with, the congressional budget process was designed to 
alter the relationship between the President and Congress. When the 
Congressional Budget Act was enacted in 1974, its intent was to 
announce that the President's budget was not the only game in town; 
Congress could devise and adhere to its own budget plan. When I first 
arrived in Washington, the phrase ``over budget'' meant that Congress 
was considering legislation that cost more than the President had 
requested. The congressional budget process has changed the meaning of 
that phrase; now, ``over budget'' usually means ``more costly than the 
congressional plan.''
    Given this history, it seems strange indeed, and probably 
inappropriate, for Members of Congress to deliberately design 
``reform'' plans that would weaken Congress vis a vis the President. 
Let me list some pending proposals that would weaken Congress and 
strengthen the President.
     An automatic ``continuing resolution,'' which would 
automatically extend the current level of appropriations into the next 
fiscal year if new appropriations bills were not enacted by October 
first. Such a proposal would make it far easier for a President to 
justify vetoing an appropriations bill whenever he prefers the status 
quo to the increases or cuts approved by Congress.
     A ``joint'' budget resolution, which would give the 
President the authority to veto the congressional budget resolution. 
After a veto, the President's budget would be the only benchmark left 
standing. This proposal would work especially badly when different 
parties control the two branches of government.
     An appropriations ``lockbox.'' Under a lockbox proposal, a 
transient majority, through its vote on an appropriations amendment, 
can reduce for the entire year the amount allocated under a 
Congressional budget plan to the Appropriations Committee. This 
violates the first rule of politics: a deal is a deal. If the lockbox 
procedure were implemented, members of the Appropriations Committee 
would have far less reason to support any budget plan; budget gridlock 
would be more likely; again, the President's budget would be the only 
benchmark left standing.
     Biennial budgeting. The annual appropriations process is 
the one sure way that Congress can get the attention of the executive 
branch and push it to respond to specific Congressional concerns. 
Nothing awakens a cabinet secretary as rapidly and effectively as a 
threat to cut his staff.
     Line-item vetoes, enhanced rescissions, and restrictions 
on omnibus legislation. The President has the power to veto legislation 
if he does not agree with some aspect of it. Congress, in 
counterbalance, has the power to package legislation, which increases 
the likelihood that the President will sign legislation that contains a 
few policies that Congress desires but he does not. Line-item vetoes, 
enhanced rescissions, and restriction on omnibus legislation would each 
weaken the effectiveness of congressional packaging.
  has the congressional budget act allowed presidents to run and hide?
    History demonstrates that that it is very hard to achieve any major 
deficit reduction without Presidential leadership. Currently, President 
Bush is in a state of official denial, and perhaps self-denial as well. 
A little-known analysis contained in the President's own budget 
document reveals that under his own policies, the current shrinking of 
the deficit will be temporary. Table 13-2, on page 209 of OMB's 
Analytical Perspectives, shows that unsustainable and unmanageably 
large deficits will reappear--deficits that will cause the burden of 
debt service to consume an ever-increasing share of national income. 
(See table on page 3.) Specifically, OMB projects that under the 
administration's policies, the debt will grow from its current level of 
39% of GDP to more than 100% of GDP by 2050 and about 250% of GDP by 
2075. Of course, this cannot happen; tax increases, spending cuts, or 
both will have to be enacted before we reach national bankruptcy.
    And yet the figures in this OMB table present too rosy a picture, 
if that is possible. OMB's extrapolations are based on the President's 
budget, which a) completely omits the costs of Iraq, Afghanistan, and 
the international war on terror, b) includes no costs in any year for 
relief from the Alternative Minimum Tax, and c) presumes that the role 
of domestic appropriations in the economy can be reduced over the next 
5 years to a level that has not been seen since before the New Deal. 
These domestic cuts are so embarrassing that OMB programmed its 
computers to ``white out'' the program-by-program funding levels--
though not the grand totals--for every year after the current year.
    In my view, there will not be any major deficit reduction 
legislation unless President Bush stops denying reality and decides to 
scale back both his spending priorities and his tax cuts. Given the 
difficulty of deficit reduction, a willingness to negotiate directly 
with the leaders of both parties is probably necessary.

                                      TABLE 13-2.--LONG-RANGE MODEL RESULTS
                                              (As a percent of GDP)
----------------------------------------------------------------------------------------------------------------
                                   1995     2005     2015     2025     2035     2045     2055     2065     2075
----------------------------------------------------------------------------------------------------------------
Receipts.......................     18.5     16.8     18.5     19.1     19.6     20.2     20.9     21.5     22.0
Outlays:
    Discretionary..............      7.4      7.9      5.9      5.9      5.9      5.9      5.9      5.9      5.9
    Mandatory:
        Social Security........      4.5      4.2      4.4      5.4      6.0      6.0      6.1      6.2      6.4
        Medicare...............      2.1      2.4      3.3      4.6      6.0      7.0      7.9      9.1     10.4
        Medicaid...............      1.2      1.5      1.9      2.1      2.3      2.6      2.8      3.0      3.3
        Other..................      2.2      2.8      2.0      1.7      1.5      1.3      1.2      1.1      1.0
                                --------------------------------------------------------------------------------
    Subtotal, mandatory........     10.1     10.9     11.6     13.8     15.8     16.9     18.0     19.5     21.2
    Net Interest...............      3.2      1.5      1.9      2.0      3.1      4.8      6.9      9.7     13.3
                                --------------------------------------------------------------------------------
      Total outlays............     20.7     20.3     19.4     21.8     24.8     27.6     30.8     35.1     40.4
Surplus or deficit (-).........     -2.2     -3.5     -0.9     -2.7     -5.2     -7.4    -10.0    -13.6    -18.4
Debt held by the public........       49       39       36       38       59       90      130      181      249
----------------------------------------------------------------------------------------------------------------

    How does this discussion of exploding deficits relate to the 
congressional budget process? Well, one unexpected consequence of 
congressional budgeting is that, by repositioning the budgetary 
spotlight away from the President and onto Congress, the Budget Act has 
allowed Presidents to get away with increasingly irresponsible 
budgeting. You have just heard me criticize President Bush for his 
incomplete and disingenuous budget. But President Reagan had his 
``magic asterisk''--unspecified cuts to be proposed at a later time. 
The first President Bush had his ``flexible freeze'' and his ``Black 
Box,'' two other terms for unspecified future spending cuts. President 
Clinton frequently employed mechanical formulas for his outyear 
appropriations numbers, allowing a downward path in total while denying 
that there was any ``policy content'' to any particular outyear budget 
cut. In short, while the Congressional Budget Act strengthened the 
congressional role in budget making, it also made it easier for 
Presidents to avoid the toughest decisions because the press and the 
public have had their budgetary attention diverted to the congressional 
spectacle. The Budget Act should come with a warning on the bottle: 
``Side Effects May Include a Loss of Presidential Leadership. If this 
Condition Persists for More than Four Years * * *''
    This diagnosis poses an obvious question: has the improvement in 
congressional budgeting been great enough to justify the bad side 
effects? My answer is no. History demonstrates that good public policy 
is not the necessary result of the Congressional Budget Act. Broadly, 
the Budget Act has given a determined majority more tools to get its 
way on budgetary matters and has allowed more coherent budget plans to 
be concocted and enacted. The Budget Act has helped strengthen the 
leadership and weaken all committees; the Budget Act has helped 
diminish the role of individual members as citizen legislators and 
diminish the role of committees as repositories of acknowledged 
expertise. One result is that Congress--both the House and the Senate--
are a giant step further from being deliberative legislative bodies and 
a giant step closer to being parliaments, whose main role is to ratify 
decisions made by its party leadership. Among other side effects, the 
Budget Act has helped foster partisanship, but without the useful 
British assumption that the minority is by definition loyal. To put 
this simply, the Budget Act makes it easier to implement budgets, 
whether irresponsible or responsible. When Congress makes mistakes, as 
it did in 1981, 2001, and 2003, the Budget Act facilitates bigger and 
costlier mistakes.
    So let me make a modest proposal. I noted in my first point that 
many current budget process ideas would weaken Congress and strengthen 
the President. I concluded in my second point that the Budget Act has 
had at least two unfortunate side effects--increased Presidential 
poltroonery and increased Congressional partisanship--without producing 
better budget outcomes. My suggestion, therefore, is to take these two 
points to their logical conclusion: repeal Title 3 of the Congressional 
Budget Act--abolish the Budget Committees, budget resolutions, 
allocations, reconciliation, and all that, and return to the days in 
which the President's budget was the budget, and Congress, in committee 
and on the floor, would act on the various Presidential proposals 
piecemeal. (I would keep CBO, which seems an unalloyed good.) This 
proposal would strengthen the President more effectively than the many 
ideas I initially discussed, while getting rid of the unfortunate side-
effects of the Congressional Budget Act.
    However, because I do not expect this Committee to agree to self-
immolation, and because I have too much residual affection for the 
constructive role of this Committee can play, in the remainder of my 
testimony I take a different approach to the budget process reform.

                ``LIQUID COURAGE'' VERSUS ``DO NO HARM''

    By 1985, the Congress had had enough of the outsized and permanent 
structural deficits caused by the 1981 Reagan tax cuts combined with 
the Reagan defense increases. In a fit of desperation, Congress enacted 
Gramm--Rudman-Hollings, a doomsday machine designed to produce 
automatic ``sequestration'' so unpalatable that even President Reagan 
would negotiate tax increases and defense cuts, while even a Democratic 
House would negotiate cuts in Democratic entitlement programs such as 
Social Security, Medicare, and Medicaid. Broadly speaking, GRH was a 
major failure. Serious negotiations did not occur. Instead, OMB and the 
Congress employed wildly unrealistic estimating assumptions and 
accounting gimmicks to pretend they were trying to meet the GRH 
targets. When the lies and gimmicks went beyond the capacity of even 
the most cynical to swallow, GRH was set aside.
    Once Congress and President Bush (the first) agreed to scrap GRH, 
they also agreed on an ambitious plan of entitlement cuts, defense 
cuts, and tax increases. And they created a new structure to enforce 
that agreement, a structure of appropriations caps and a PAYGO rule 
applied to future tax and entitlement legislation. Two rounds of 
deficit reduction that were not forced by the process, but whose 
outcomes were enforced by caps and PAYGO, plus an unfortunate increase 
in income inequality, led to 8 years in a row of improved budget 
outcomes for the first time in US history, and 4 years in a row of 
balanced budgets.
    The point of this history is to reinforce the conclusion that no 
budget process can make the President and Congress do the right thing, 
which is to take major and significant unpopular actions in the face of 
permanent structural deficits. The experience with GRH demonstrated the 
futility of that idea. The threat of automatic across-the-board cuts in 
popular programs is not enough to get antagonists to the bargaining 
table, because the threat can never be made credible. The more extreme 
the threat, the less credible it is. No matter how it is designed, the 
budget process cannot provide the ``liquid courage'' needed to make 
members take hard votes. Easy votes and press releases are so much more 
fun.
    In this context, the entitlement cap included in a recent budget 
process proposal, HR 2290, is simply a worse and more unfair version of 
GRH, and is at least as likely to fail. That cap would require roughly 
$2 trillion in entitlement cuts over the next 10 years. The cuts would 
be 20 to 30 times as great as those in the President's recent budget or 
this year's congressional budget plan, which are themselves politically 
troubling. This idea cannot work.
    Nor should it work. Entitlement cuts of even a quarter this 
magnitude would significantly increase the number of Americans with no 
health insurance or with health insurance that covers only a small 
fraction of the costs of getting sick. The cuts would increase the 
depth of poverty for many children, elderly persons, working families, 
and persons with disabilities, and drive many others into poverty. It 
would threaten the disability benefits and pensions of veterans, the 
price stabilization programs for farmers, the unemployment benefits of 
those who are laid off, and the pension and disability benefits for all 
current and future Federal retirees, civilian and military alike. Yet 
this approach to deficit reduction is completely one-sided: neither the 
entitlement cap nor any other aspect of HR 2290 would do anything to 
scale back the very generous tax cuts I have received, none of which I 
needed, or the far more extravagant tax cuts the very wealthy have 
benefited from.
    What can work is a less ambitious but fairer budget process agenda, 
in which the rules are changed to diminish the ability of Congress to 
use the budget process to increase the structural deficit. I call this 
the ``do no harm'' approach.
    My first and most significant suggestion is to reinstate the two-
sided PAYGO rule, which would provide a point of order against any 
legislation that either increases entitlement costs or decreases 
revenues, relative to current law, during the current and the budget 
year, the sum of the current year plus the next 5 years, or the sum of 
the current year plus the next 10 years. This idea has been debated at 
some length recently and so does not need further elaboration, but the 
idea is still fundamentally meritorious in a time in which all 
reputable forecasts including those by OMB, CBO, and GAO show large, 
permanent, structural deficits. And despite the fact that a PAYGO rule 
is much less ambitious than, say, and entitlement cap, even a PAYGO 
rule won't hold unless both parties and both branches want it to.
    I also recommend a less ambitious version of the PAYGO rule. 
Currently, the ``Byrd Rule'' prevents the Senate from using the fast-
track reconciliation process to make the deficit greater in years after 
the budget window covered by the reconciliation directive. However, the 
Byrd Rule does not have such a restriction for years covered by the 
reconciliation directive--in those years, the Senate can use this 
mechanism to make the deficit worse. I recommend changing the rule so 
that reconciliation can only be used to enact legislation that, in net, 
reduces the deficit. That was its original use from fiscal 1980 through 
fiscal 1999.
    I might add that HR 2290 is precisely wrong with respect to the 
reconciliation process; that bill would amend the Byrd Rule to allow 
reconciliation bills that permanently increase the deficit.
    I have heard it suggested that PAYGO rules or reconciliation 
instructions should not apply to tax cuts because tax cuts ``pay for 
themselves.'' This is utter nonsense. I recently examined average 
economic growth rates and average revenue growth rates over the course 
of the business cycles since World War II. The table below shows the 
results: economic growth during the 1980s, with its very low marginal 
income tax rates for the well off, was no better and no worse than 
growth during the 1990s, during which much higher marginal tax rates 
were imposed on the well off. And since real economic growth was the 
same during these two periods--an average of 2.0% per year per person--
it follows that the tax cuts of the 1980s did essentially nothing to 
pay for themselves over the long run.
    This can also be seen by looking at the average annual growth rate 
of revenues, and especially income tax revenues, over these periods. 
The tax increase of 1990 and 1993 generated substantial increases in 
revenues, while the tax cuts of 1981 and 2001 produced unusually low 
revenues. To put it most simply, tax cuts do not pay for themselves; 
all they do is lose revenues. The ``starve-the-beast'' crowd 
understands this perfectly well. After all, if tax cuts paid for 
themselves, they would in no way constitute a starvation diet. This is 
one fundamental way in which Grover Norquist is correct--tax cuts lose 
revenues. And that is why their cost must be covered within budget 
constraints such as PAYGO rules.

                           ECONOMIC GROWTH AND REVENUE GROWTH DURING SELECTED PERIODS
   (All economic and revenue figures are expressed as average annual growth rates, adjusted for inflation and
                         population growth, i.e., average real per-person growth rates)
----------------------------------------------------------------------------------------------------------------
                                                             Growth of                          Growth of total
                                       Growth of income   payroll, excise,   Growth of total    tax receipts if
   Fiscal years        GDP growth        tax receipts     estate, & other      tax receipts    capital gains are
                                                            tax receipts                            excluded
----------------------------------------------------------------------------------------------------------------
      1948-1979               2.4%               1.8%               3.1%               2.3%               n.a.
      1979-1990               2.0%               0.2%               2.9%               1.3%               1.3%
      1990-2000               2.0%               4.2%               1.9%               3.2%               2.9%
      2000-2015               2.0%               0.1%               0.8%               0.4%               0.6%
----------------------------------------------------------------------------------------------------------------
Note: revenue and economic projections through 2015 are from CBO and assume the 2001 and 2003 tax cuts will be
  extended and AMT relief will be enacted.

    Chairman Nussle. I want to thank our panelists.
    I am going to defer my questions until later, and I would 
recognize Mr. Hensarling to begin the questions.
    Mr. Hensarling. Thank you, Mr. Chairman. And in keeping 
with your wishes and trying to keep this at somewhat of a 
30,000-foot-view, I think I would like to start out with what 
some may consider an obvious question, perhaps not so obvious 
to others, and that is what is the purpose of having a budget? 
I would think for most American families and for most 
businesses it is all about making choices about relative 
priorities and placing a ceiling on one's spending.
    If you accept that definition, presently we spend a lot of 
time in this committee debating 20 budget functions which do 
not correlate to our appropriations bills and are not otherwise 
enforceable. We all recognize that over half of our spending we 
characterize as mandatory and is not captured within our 
budgeting process. And although we have come very, very close 
as of recent, I am not sure the memory of man runneth to the 
contrary, and us actually meeting the ceiling that we have 
placed into our budget.
    So I really have a twofold question here. No. 1, what 
should the purpose of the Federal budget be? And once you 
define that, give me one or two ideas of what we need to do to 
meet that definition.
    Congressman, could we start with you? And it is an honor to 
have you back here, sir.
    Mr. Frenzel. Sure. Thank you very much, sir.
    I think that the purposes and uses of a budget were set 
forth very well in the committee's paper on the purposes of the 
hearing, which include empowering Congress to control the 
purse, setting priorities, controlling spending, enforcing 
spending limits, addressing entitlements and providing a 
congressional agenda and work plan. I think all of those are 
reasons or rather functions of the budget and reasons why the 
Congress should have a budgeting process and should improve the 
ones that it has.
    Every unit, from an individual to a family, to a 
corporation, association, cooperative, whatever, needs to know 
what its plans are, what its resources are, what its expected 
outgoes are, et cetera. And Congress should be no different 
from the rest of the world.
    The problem, of course, is that most individuals and 
families don't have real budgets. They have some idea of what 
the concept is. And Congress, in the Budget Act, has got at 
least some tools that it can use to serve each of those 
functions.
    In answer to the second question--or maybe the implied 
second question is, what do you do to make it better? I think 
you have heard a lot of suggestions today. In my judgment, the 
prime need has been always to control spending and to enforce 
whatever limitations you put on spending. And the reason for 
that is that the incentives in Congress are so overwhelmingly 
in favor of increasing the size of government and increasing 
programs, et cetera. I think you have to--I think one of the 
first things you have to do is control the spending through the 
device of the mechanisms that at least a number of speakers 
have mentioned today, including Congressman Spratt----
    Mr. Hensarling. If I could follow up on your point about 
controlling spending, and my apologies to the other two 
gentlemen, but I see that 5 minutes is traveling rather quickly 
here. But right now we have Medicare growing, predicted to grow 
in the next decade by 9 percent, Medicaid 7.8, Social Security 
5\1/2\. We recently received some rather sobering projections 
from the Pension Benefit Guaranty Corporation about unfunded 
obligations there. Can we have a meaningful budget process that 
does not capture these long-term obligations? And shouldn't the 
American people be aware of the implications?
    We have seen a recent GAO (Government Accountability 
Office) report that says, I believe, by 2035, if we don't do 
something to control these entitlements, that we are going to 
have to double taxes on our children and grandchildren just to 
balance the budgets. So the question is can we have a 
meaningful budget process reform without capturing these long-
term obligations? And, Mr. Schick, I will give you a chance to 
answer that question in 3 seconds.
    Mr. Schick. Congressman, I think you mentioned only one of 
the purposes of budgeting, which is to make choices. By the 
way, I disagree with my colleague Mr. Frenzel that every family 
should have a budget. I think that budgets and romance do not 
mix, and families can be split by budgeting the way Congress is 
split by it. So keep families out of the budget situation.
    But in addition to making choices, a fundamental purpose of 
budgeting in a democracy is to keep commitments, commitments to 
people, to voters, to citizens, to families, to people who are 
ill, disabled, employed, unemployed, today's workers, and 
tomorrow's pensioners. That is no less a function of budgeting 
than making choices.
    It turns out that these two purposes, keeping commitments 
and making choices, often clash with each other, so you have 
got to balance the two. But imagine a Congress of the United 
States in which every budget was constructed on a blank piece 
of paper; it had complete freedom to do what it wanted. The 
result might be to have a great Congress and have a lousy 
Nation. So I think it is very important to balance new choices 
and past commitments.
    Now, what should Congress do? I would go a little further 
than Mr. Kogan, and would not only bring back BEA, combine it 
with Gramm-Rudman-type constraints on deficits. That is, with 
deficit targets; but I would change Gramm-Rudman so it is tied 
to actual rather than to projected deficits; I would keep 
reconciliation; and use it principally to restrain deficits by 
curtailing expenditures and, when needed, boosting revenues. So 
that what you would end up with is a bilateral BEA, which I 
believe is entirely right, because a process which targets only 
the revenue or the spending side of the budget would be 
discredited very quickly; it won't have the across-the-board 
political support necessary to work.
    The ideal then, is a budget process that treats direct 
spending and revenues the same way, has discretionary caps, as 
well as deficit targets keyed to actual deficits, and 
reconciliation.
    Chairman Nussle. Mr. Spratt.
    Mr. Spratt. Thank you, Mr. Chairman. And again, to our 
three witnesses, thank you for some excellent and provocative 
testimony.
    Let me focus on the whole issue of the reconciliation, 
because originally it was the enforcement provision and the 
resolution, and it when was removed, we have been searching 
ever since for some form of enforcement that would keep us to 
the budgetary outline that we had adopted earlier in the fiscal 
year.
    Richard Kogan, or all of you, do you think that we have 
perverted the meaning of reconciliation, even as it exists 
today in a more limited form, by allowing it to be used for tax 
cuts that are--whose passage through the Senate is facilitated, 
even though they add to the deficit?
    Mr. Kogan. Mr. Spratt, on balance I do. The technician in 
me likes the idea that reconciliation exists as a way of 
implementing whatever the budget plan is, but my conclusion in 
looking over the last 30 years is that because the 
Congressional Budget Act strengthens Congress's tools to both 
do good and do bad, because mistakes are now doozies as opposed 
to smaller mistakes when they occasionally occur, it would be 
the better part of wisdom to limit reconciliation to what I 
think most people thought they were talking about in 1980 and 
1981 when they were first implementing it, limit reconciliation 
to cutting entitlements below their current law projections and 
raising taxes above their current law projections, at least in 
net, so that, at a minimum, the reconciliation process meets 
the stricture that I talked about at the beginning, which is to 
do no harm.
    To back up a step, in the previous set of questions, one 
witness said that the purpose of congressional budgeting was to 
restrain spending. And I think that is a necessary part of any 
budget, but it is not the sole purpose, because, of course, 
that leaves totally out of the picture the question of whether 
we have sustainable and manageable deficits, whether the 
deficits are fair to future generations, whether the increase 
in debt is good for the United States and necessary, or whether 
it is bad and unnecessary, and so on.
    Deficits are not the difference between spending. They are 
the difference between spending and revenues, and so both of 
these pedestals of budgeting need to be looked at, need to be 
taken equally seriously. Their effects are equally important, 
and they need to be equally constrained, and in this case, in 
answer to your question, equally constrained through 
restrictions on what can be done in the reconciliation process.
    Mr. Spratt. Professor Schick, would you agree that the 
reconciliation rule should be such that within the budgetary 
time frame, there had to be deficit reduction achieved?
    Mr. Schick. Mr. Spratt, I would not call the use of 
reconciliation for tax cuts a perversion of the process, 
because the bare words of the Congressional Budget Act clearly 
allow reconciliation to be used in any direction.
    Nevertheless, I strongly agree with the sentiment that you 
have expressed, and that is that the text of the Budget Act be 
revised so as to limit reconciliation to measures that reduce 
the deficit. And I say so for a few reasons. First, I believe 
fundamental tax reform such as has been enacted in this decade 
should not rely on the expedited process of reconciliation. 
Secondly, I believe that using reconciliation in this way, as 
Mr. Spratt has suggested, would give the House some version of 
the Byrd rule, a de facto Byrd rule. Members of this committee 
know that the Byrd rule has actually empowered the Senate vis-
a-vis the House in conference on reconciliation bills. The 
Senate can plead weakness, its hands are tied because of the 
Byrd rule, and therefore the House has to recede on 
disagreements. So I would endorse your proposal that 
reconciliation be reserved for deficit reduction.
    Mr. Spratt. Mr. Frenzel.
    Mr. Frenzel. I am going to reserve on that, Congressman. I 
think when you have a rule, you have got to understand it is 
going to work in a couple of ways, sometimes not to your 
liking. And I need to think about that a little longer.
    Mr. Spratt. Well, let me ask you, if we reinstated the 
PAYGO rule, do you think it should be reinstated in its 
original form so that it applies to tax cuts as well as 
entitlement increases?
    Mr. Frenzel. I do.
    Mr. Spratt. Thank you, sir.
    Now, let me ask you, Richard, Mr. Kogan, you talked about 
the effects of the reconciliation rule on passage of tax cuts 
through the Senate. Namely, it waives--it allows the time for 
debate to be limited and prevents the proposal from being 
filibustered. What about the House? Why not have a similar rule 
apply in the House where all tax legislation originates? Is 
there some problem with that?
    One problem, of course, is the Rules Committee, and I would 
like all of your ideas as to what we can do to have rules 
around here that are enforceable and invulnerable to being 
overridden by the Rules Committee. But why not have it 
applicable in the House as well?
    Mr. Kogan. The House and the Senate are so fundamentally 
different bodies that it is not clear to me that this is a 
meaningful question with respect to the House. You could easily 
have a rule, a PAYGO rule or a rule on reconciliation, with 
respect to the House, but it can just as easily be waived by 
the rule, the special order for consideration of the 
reconciliation bill, which is waived by agreement by majority 
vote.
    As you well know, when the Democrats were in the majority, 
the Rules Committee had two Democrats for every Republican 
member, plus one. And now that it is the other way around, the 
Republicans have two Republicans for every Democratic member 
plus one. And the Rules Committee is picked by the leadership 
at least in part for its loyalty, so that what is going to 
happen becomes a leadership decision.
    A PAYGO rule, therefore, will only work, only be enforced 
in the House, if it is a rule that the leadership shook hands 
on. In the case of 1990, when the PAYGO rule was first designed 
and implemented, Mr. Foley was negotiating on behalf of House 
Democrats. He shook hands on that rule, and he used his 
position in the leadership to continue to enforce it for as 
long as he was in power.
    But in the House the ethic really is that whatever gets 218 
votes deserves to pass, and that the majority needs to govern, 
and that the House with its 435 Members, as opposed to the 
Senate's 100 Members, needs to be able to limit debate in some 
way. So the whole notion of the Senate having a special 
procedure for reconciliation doesn't really mean anything in 
the House, where every bill is considered under special 
procedures designed by the Rules Committee.
    Unless we are going to turn the House of Representatives 
into the Senate--which, first of all, if you recommended it, 
wouldn't happen; and secondly, I don't think the House of 
Representatives wants to become like the Senate--unless you are 
going to turn the House of Representatives into the Senate, the 
question about whether there should or shouldn't be a PAYGO 
rule in the House isn't really an important question. My answer 
is, ``Yes, of course.'' But the real purpose of espousing a 
PAYGO rule or a rule in the Budget Act that says that 
reconciliation directives can only be used for deficit 
reduction is to make the Senate, which must follow those rules 
or get 60 votes--to make the Senate be the implementer of that 
type of budget constraint.
    Mr. Spratt. One final question to the whole panel. You 
talked mainly about budget processes, budget tools that are on 
the table now, have been tried in the past, or at least are 
frequently discussed and recommended as improvements to our 
existing process, but nothing that really pushes the envelope 
greatly. I guess we have got enough difficulty making the state 
of the art work.
    But we run the biggest cash budget in the world, the 
Federal Government, and that allows us to ignore the looming 
liabilities for major entitlement programs that, had they been 
taken seriously in 2001, might have tempered the enthusiasm for 
the tax cuts that were passed then. Do you think we should have 
some kind of annex to the budget, some kind of major mechanism 
that reminds Congress, brings home to us every year what the 
accrual liabilities are, what the present value of our major 
liabilities are that need to be addressed in the foreseeable 
future so that we take that into consideration in forming our 
budget?
    Mr. Frenzel. I do. If you--to look forward more than a 
couple of years is infinitely dangerous because estimators have 
great difficulty predicting what is going to happen tomorrow. 
Nevertheless, using a 5- or even a 10-year time frame is not 
adequate, and there ought to be, I think, some kind of system 
at least to look out into those outyears as we do for Social 
Security and certain other programs, at least so the Congress 
is aware and there is a record of what this is going to do to 
us.
    I don't think that you want to restrict what we do today 
too far out because I think that is dangerous, and I am really 
nervous about our estimates. But I think we have to know, to 
look at programs over the longer term.
    When your party was in the majority, you always gave us 
out-loaded spending programs. When my party was in the 
majority, we give you out-loaded tax cuts. And I guess that is 
part of the game, but in every case we should know what is 
going--to the best of our ability, what is going to happen out 
in those long outyears.
    Mr. Spratt. Mr. Schick. Dr. Schick.
    Mr. Schick. Yes. The ideas you suggested have merit, 
present value calculations and accruing liabilities and taking 
a long-term perspective. But standing against these is one 
statistic which I think every person in this room recalls, the 
$5.6 trillion surplus which was projected in January 2001.
    When you build long-term projections into budget rules, you 
have an enormous amount of instability in budget outcomes, 
which are sensitive to changes in interest rates, and other 
assumptions. Basing budget decisions on long-term projections, 
which swing wildly from one year to the next may turn budgeting 
for rank-and-file Members of Congress into a technical 
exercise, and lead to manipulation of the underlying 
assumptions in ways that would go far beyond the manipulation 
which is currently practiced.
    Mr. Kogan. Mr. Spratt, you asked whether it would be 
helpful to include in the measurement of the budget a long-term 
picture, not just going out 10 years, but going out 
considerably beyond that, perhaps on a present-value basis. And 
the previous questioner also pointed to the long-term problems 
that we have, and I included in my testimony a chart from OMB 
outlining, I think, in an overly rosy way how horrible the 
long-term problems are. Certainly the Comptroller General has 
been going around to the country almost lighting his hair on 
fire trying to get people to focus on this problem.
    My answer, therefore, is the same as Mr. Frenzel's. Yes, I 
think it would be useful if CBO not only did periodic, every 
other year, long-term graphs, but also created an annual 
summary present-value measure of the mismatch between revenues 
and expenditures. Over the long term I estimate it to be 
something like 5 percent of GDP, even worse than our current 
deficits, which are 2\1/2\ to 3 percent of GDP over the mid 
term, even though things will get better temporarily before 
they get worse again. And my estimate is by no means the most 
pessimistic out there.
    I think having such a long-term figure estimated annually 
by CBO and OMB, and perhaps including that figure as an 
informational item in the budget resolution, will help people 
not get carried away by one quarter or 3 years of good news, 
because the looming deficits are not going to go away unless we 
make major changes in both the spending and tax side of the 
budget.
    Whether one should attach budget procedures to that long-
term estimate, whether one should try to control legislation 
based on its marginal outyear effects in the far distant 
future, is a much, much harder question, and I am undecided on 
that. I have spent actually a lot of time on that question. I 
was in a 2-hour meeting yesterday discussing exactly that 
subject. If you do have long-term procedural constraint, you 
must also, however, maintain the short-term procedural 
constraints: the rules that say that over 1 year do no harm, 
over 5 years do no harm on a cash basis, over 10 years do no 
harm, as well as over a much longer period, do no harm. You 
should not, under any circumstances, abandon the short-term 
measures and constraints and focus solely on a long-term 
measure.
    Mr. Spratt. Thank you very much.
    Chairman Nussle. Let me ask unanimous consent that all 
members be allowed to place statements in the record today. 
Without objection, so ordered.
    Mr. Putnam.
    Mr. Putnam. Thank you, Mr. Chairman. And thank you for 
putting together this hearing.
    I want to talk a little bit about the history of the act. 
In managing the rule on this year's budget, I had the 
opportunity afterwards to talk to both Mr. Young and Mr. Obey 
about it, and their comments were very similar to some that you 
made, Mr. Kogan, and essentially, in their view anyway, it 
worked--the whole process worked better before 1974. And in 
particular when there was a deficit, they were much smaller, 
and I think your words were, ``the mistakes were small. Now 
they are doozies.'' Why is that? What fundamentally changed 
that caused the errors to be greater?
    Mr. Kogan. I think, as I said before, one aspect of the 
Budget Act is that it gave the leadership and the Congress, 
and, in essence, this committee, any determined majority, 
stronger tools. And with stronger tools you can simply make 
more changes. The older practice was a practice in which the 
President's budget may have been a coherent whole, logically 
designed hard choices made by the President, detailed work done 
by OMB. Once it reached Congress, it was divided into many 
pieces, and each committee acted independently. That seemed 
incoherent to political scientists. But I suggest that it 
actually had a useful conservative effect because a lot of 
uncoordinated committees were going off, each in their own 
separate way; there was less likely to be a stampede all in one 
direction or a stampede all in the other direction.
    It is conservative in the same sense that the existence of 
both the House of Representatives and the Senate is a 
conservative approach to legislating. It makes it harder to 
pass legislation, any legislation. And the existence of the 
Senate as a nonmajoritarian body (because they are not 
representing people, but rather acres) also makes it harder to 
enact legislation, because the House membership will, in 
essence, represent different interests than the Senate 
membership will on many occasions.
    And the existence of a functioning legislature versus a 
President--who also wants to enact things--that may be of 
opposite parties, a situation that doesn't exist in a 
parliamentary system, also is a conservative structure. All of 
these conservative effects make it harder to do anything for 
good or for ill.
    In a country like the United States, which has had 
basically 200 years of good luck, except for what we did to 
ourselves in the Civil War, it is probably useful to have an 
inherently conservative legislative structure that makes it 
hard to take lots of actions. Here we are, the richest and most 
prosperous country in the world. We have got something good 
going for ourselves. The major mistake would be to mess it up. 
And so that is why I think I am advocating in an inherently 
conservative position, which is that I am not happy that the 
Budget Act has given the leadership stronger tools.
    Beyond that, however, I think that the Budget Act, by 
fostering partisanship, also raised the stakes for 
accomplishing something. Each party felt in Congress as though 
it had to say, ``Here is our budget, we are going to implement 
it. Boy, let me show you, American public, what we can do for 
you.'' And the other party almost by definition had to say, 
``We disagree. We have a different philosophy.'' The other 
party, for the purposes of product differentiation, had to 
stress differences.
    Here is where Congressman Obey, I think, was prescient. It 
was in 1973 and 1974 when the Budget Act was being created that 
he looked at the composition of the House Budget Committee, 
which had been designed by the Joint Study Committee on Budget 
Control as a permanent committee that would have 15 Members, 5 
from the Ways and Means Committee, 5 from Appropriations, and 5 
from all others.
    Congressman Obey looked at the senior members of 
Appropriations and Ways and Means and saw that the Democrats 
were all conservative southerners, and Republicans were 
Republicans, and that these two committees had 10 of the 15 
slots. Mr. Obey said, this is a committee that doesn't 
represent, A, my views, and, B, what were then the majority 
views in the House of Representatives, which were northern 
Democrats and, I might add, liberal Republicans.
    He said, this committee is all wrong. He said, and he said, 
I think, publicly, budgeting is inherently a partisan exercise 
in which the two parties lay out different agendas. We need to 
remake the Budget Committee to reflect that reality. I am 
willing, he said, to go along with the Budget Act only under 
the following conditions. (This is amazing that a Member with 3 
years of seniority at that point could command such respect, 
but he really did.) He said, we need to make the Budget 
Committee work as a partisan body, and I am going to do it in 
the following ways. I am going to insist that there be a 
leadership representative on the Budget Committee. I am going 
to insist that the chairman be picked not on the basis of 
seniority, but by each party by vote. I am going to insist that 
there be rotating membership. And I am going to insist that it 
be a larger committee; the same number of Ways and Means and 
Appropriations members, but much larger representation from 
other committees. That was a way to keep, from his point of 
view, all of the most senior conservative Southern Democrats 
from dominating the committee. He got his way on all of these 
changes, and, therefore, from day one, the Budget Committee in 
the House of Representatives was a partisan committee.
    Not so in the Senate. In the Senate, when the Budget 
Committee was set up, in the first series of budgets Senator 
Muskie and Senator Bellmon, the Democratic chairman and the 
ranking Republican, produced a joint mark which they negotiated 
between themselves, laid it down before the committees, got 
their members to vote yes, generally almost unanimously, and 
then got the Senate to approve these budgets by 80 votes to 20 
votes.
    Ultimately, though, the Obey view of the world held sway, 
and I think that while he is sort of a genius of a political 
analyst, I think the resulting partisanship has been bad for 
the House of Representatives and this institution.
    Mr. Putnam. Is it a good or bad idea that we have term 
limits on this committee, for all three witnesses?
    Mr. Schick. Let me go back to the previous question and 
join it with this one. Yes, you can make bigger mistakes when 
you have a comprehensive budget process that looks at 
priorities, aggregates, revenue spending, et cetera. In fact, 
Congress has made big mistakes under the process that allows it 
so. But I suggest that before dismantling this process, 
Congress should review the two causes of the Congressional 
Budget Act of 1974. One was mentioned by Mr. Frenzel, conflict 
with the President over impoundment. But there was a second 
cause which was equally relevant, and that was a 7-year war 
between the appropriations, tax, and authorizing committees in 
Congress. The three sets of committees fought over who was 
responsible for deficits, and what to do about them. Congress 
almost broke down over that in terms war. It couldn't deal with 
the deficits of those days. So the 1974 Budget Act was a treaty 
within Congress about how the various committees--authorizers, 
appropriators, revenuers--should act on budget matters.
    The second point is I believe that Mr. Kogan's history is 
incomplete in the following way: The main objective of Mr. 
Obey, and the DSG, the Democratic Study Group, which produced 
its own plan, was to create a weak House Budget Committee. That 
is what they cared about the most. They wanted a House Budget 
Committee that could not do very much. Look at the DSG reports 
of 1973 and 1974, they attacked the proposed Budget Committee 
as a supercommittee. That was the label that they gave to it. 
They didn't care whether it was partisan or not partisan. They 
wanted a committee which was so weak that it couldn't act 
independently, and they succeeded from 1975 to 1980. That was 
the first stage I mentioned before. It was only when 
reconciliation was introduced that this Budget Committee had 
some teeth.
    And since we mentioned Mr. Obey, it would be instructive to 
look at his attitude to reconciliation in 1982 to 1984 and how 
he wanted to change the congressional budget process in 
response to that development.
    So here is the problem for you. Without reconciliation, 
this committee is weak; as it cannot change existing revenue or 
standing laws which drive budget outcomes. It can merely ratify 
the status quo. Reconciliation is an imperfect process. It does 
allow you to make big mistakes, particularly, and this is 
important, when the President drives you in that direction.
    We are talking today about the role of Congress, but we 
should not leave aside the role of the President. All of us on 
this panel have agreed that the budget process has empowered 
the President. What we are in effect saying is the President's 
own preferences have greater prospect of being enacted because 
of the machinery of congressional budgeting. If you consider 
reinstating PAYGO or other rules, don't simply ask what it does 
to Congress; ask whether it sufficiently disciplines and 
constrains the President so that he can behave in a responsible 
manner.
    To my mind, President Clinton would have been less bold in 
moving Congress toward deficit elimination and also less 
inventive in fudging some of the numbers, as Richard pointed 
out before, without the BEA rules. BEA didn't simply change the 
way Congress behaved, it also changed the way the President 
behaved. Given the President's power vis-a-vis the 
congressional budget process, his role has to be part of the 
equation.
    Mr. Frenzel. May I be heard for a moment, Mr. Chairman, on 
that as well?
    Chairman Nussle. Yes.
    Mr. Frenzel. In 1972, that study committee was made up of 
all appropriators of the House and the Senate. And naturally, 
they had--I am sorry, and the taxers as well. That is correct. 
And it is true that the DSG led the charge to weaken what was 
then the Budget Committee.
    The question, however, is do you make the House committee 
permanent, or leave it the way it is? My first choice is to 
make all the other committees like the budget. And my second 
choice, since you aren't going to achieve that, is to make the 
House Budget Committee permanent.
    I have watched an unending chain of chairmen and ranking 
members go into conference and complain that because of the 
organization in their House, they were inadequately armed to do 
business with the Senate. I think it would be much better to 
permanentize the Budget Committee.
    Mr. Putnam. Just a yes or no so that I am not getting in 
trouble with my Chairman.
    Mr. Kogan. I hate to give a yes or no because I have two 
hands. But on balance----
    Mr. Putnam. You took up my other 4\1/2\ minutes. I really 
just need a yes or no.
    Mr. Kogan. I apologize for stealing time. On balance I come 
down where Mr. Frenzel does, because I think the advantages of 
expertise, and also the greater likelihood that there will be 
some give and take between the parties when you have a 
permanent committee as opposed to a rotating membership, 
outweigh the advantages of rotation, where the leadership can 
make sure that the committee doesn't stray from accurately 
representing each caucus.
    Mr. Schick. I come down in favor of Mr. Frenzel's second 
choice, which is to strengthen the Budget Committee by making 
it permanent. I think the first choice would weaken everybody, 
and I don't see any gain there.
    Chairman Nussle. I for one, think we ought to spread the 
love and joy around a little bit more. So, I think not making 
it permanent would be my choice, just so we could spread the 
love and joy. Don't you think?
    Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman. Thank the gentlemen for 
being here this morning.
    We have, as you know, a national debt approaching $7.8 
trillion. We have had deficits for the past 3 or 4 years of 
about $400 billion range, and--both figures are going the wrong 
way. They are getting worse instead of better. Interest on our 
national debt is substantial. I think it ranks, in terms of 
categories of expenditures in our Federal budget, after defense 
and Health and Human Services. PAYGO rules expired in 2002, and 
yet when we tried to reimplement PAYGO rules, the majority 
party says yes for spending increases, but no for tax cuts.
    And I have been here since 1999, and I hear it is more fun 
to be in the majority because maybe we could get something to 
happen then to try to restore fiscal responsibility, because 
the other party talks fiscal responsibility, and we are doing 
exactly the wrong thing, from my perspective. We talk about 
values a lot here in Washington and Congress, and yet it seems 
to me that the highest Federal cost right now is tax cuts, more 
than providing adequately for our veterans or for education 
that we said we value so much, and yet we shortchange No Child 
Left Behind about $9 billion the first year.
    My question to you is, and I think I have heard the answer 
from each of you, but I want to confirm this, do each of you 
believe that PAYGO rules, if they are reimplemented or 
reinstituted, should be on a two-sided basis and not just for 
new spending?
    Mr. Frenzel. I do.
    Mr. Schick. I certainly do.
    Mr. Kogan. Yes, I certainly do.
    Mr. Moore. Would you please all talk to your friends in the 
majority party and tell them that? And I am not trying to be 
facetious here, but it is very, very frustrating when I--I 
think these are good people. Ninety percent of the people in 
Congress are really good people on both sides of the aisle. And 
yet I think we have just somehow got to come to terms here with 
the fact that we are putting our country in a very precarious 
position, and we are passing on these tax cuts that we are 
taking, we are passing on this huge, huge debt to our kids and 
grandkids, which I think is immoral. We should not be doing 
that. To me, fiscal responsibility is a family value and should 
be a national value as well, and we are just doing the wrong 
thing here.
    Any thoughts about what we can do to try to reimplement 
this rule?
    Mr. Frenzel. I have great sympathy for you. And if there is 
anybody on the committee I identify with, it is Mr. Spratt, 
because I sat in that seat for a long time and was abused by an 
aggressive majority which did what it needed to do, and I was 
ground under the heel, as you are now experiencing.
    All I can say is it is the job of the Minority to be the 
conscience, to make the points that you are making, but if you 
expect to--that somebody's going to listen to you, I have got 
to inform you, the chaplain has gone ashore.
    Mr. Schick. For two reasons I believe that it should be a 
two-sided PAYGO rule. One is a budget rule doesn't have 
sufficient legitimacy if it favors one party's position over 
the other party's. A budget rule has to be neutral on its face, 
embraced by both parties, and I would say that, sir, even if 
there were no large budget deficit or looming unsustainability 
in the future.
    The second reason is that I believe the hardest but most 
important thing, for a majority party to do when it changes the 
rule is to consider how would something work out if it is no 
longer the majority party at some time in the future. The 
Democrats, when they controlled the House, invented the modern 
Rules Committee. They did not envision that it would ever be 
used against them. They didn't envision becoming the Minority 
party. Well, we know how things have played out. And the same 
thing pertains to budget rules. The majority party should 
consider not what is simply in its current interest because it 
is the majority party, but what is in its interest in fair and 
foul weather as well.
    Mr. Kogan. Yes. For all of the reasons that the previous 
speakers have said, PAYGO rules should be two-sided. In fact, 
if you made it one-sided, that would not be half a loaf, but 
rather it actually, in my view, would decrease the likelihood 
of enactment of major deficit reduction. And the reason is that 
a one-sided PAYGO rule, which is really an entitlement cap at 
current law, means that one faction of the House of 
Representatives would have already received the budget rule 
that they want, an entitlement cap at current law. They would 
have no reason to negotiate any further.
    To get real deficit reduction and agreement for unpleasant 
tax increases and unpleasant program cuts, you need to give 
both sides of any negotiation something else that they want. 
You need to give the conservative side an effective entitlement 
cap in the form of a PAYGO rule, and you need to give the other 
side an effective rule against tax cuts that would drain the 
Treasury. If you already have given away part of it, then you 
are no longer going to have a successful negotiation for 
deficit reduction.
    Mr. Moore. Thank you.
    Chairman Nussle. Mr. Crenshaw.
    Mr. Crenshaw.  Thank you, Mr. Chairman, and thank you all.
    Let me go back to the process part and ask, Mr. Schick, you 
mentioned something that was kind of interesting. You know, we 
think of the budget process as making choices, and I think your 
point was that it is also keeping commitments, and those two 
are kind of in conflict. And yet it seems like maybe one of the 
things, and this is in the form of a question--is there 
something in the budget process that kind of forces us to lean 
more toward keeping commitments? In other words, one of the 
problems government has is once you fund the program, it takes 
a life of its own. It goes on forever, and it seems like we 
never really address that as much as we--we cut it a little 
bit, or we increase it a little bit. We don't really say, do we 
really challenge why we made this commitment in the first 
place?
    And so I guess that is the question. No. 1, is there 
anything in the process that kind of perpetuates that? But more 
importantly, is there anything that you all can think of that 
we could put in the process that would make it easier or more 
often we would actually challenge existing programs? I guess 
one way obviously is just--there is only so much money, so then 
the appropriators have to go figure out how to do it. But is 
there something, some process, we could put in place in terms 
of budget that would help the budgeteers look at programs, and, 
as you say, is it a commitment we ought to keep on keeping? 
Because there are probably some that we should, some that we 
shouldn't, and that in part is like making a choice.
    But can you all comment on that just from a process 
standpoint that would really--whether it is mandatory or 
discretionary, I mean, and probably more, and that is another 
question, maybe, the mandatory part. But right now just from a 
discretionary standpoint, are their process--do you sunset 
programs, or do you--I mean, what are some things we might 
consider?
    Mr. Schick. Well, in my view, the process is overly biased 
in favor of keeping commitments rather than making choices. It 
is a clash between these two that creates good budgets. It is 
much easier to keep commitments, obviously, than to make new 
choices. But I do believe that there are certain features of 
the current budget practices that strengthen the bias in favor 
of keeping commitments and make it harder to take initiatives 
that alter the path of spending.
    What I am about to say is going to make no friends at the 
Congressional Budget Office. The way baselines are now used, 
puts commitments in concrete and makes it harder to change 
them.
    In contemporary budgeting, the computer that runs the 
baseline gets the credit for spending increases, and Congress 
gets the blame for spending cuts. That is basically the way the 
baseline operates today. Imagine a world of budgeting in which 
we didn't have baselines, and the question would be, how much 
should we increase Medicaid? The example I gave earlier, over 
the next 5 years, should we increase it by $20 billion or $40 
billion or $100 billion? Congress would be making choices. I 
hope it would also be keeping commitments, but the baseline, 
the way it is engineered today makes it exceedingly difficult 
for Congress to pay the political price for reopening some 
commitments, even at the margins.
    In this regard, I believe PAYGO itself was deficient 
because PAYGO actually strengthened existing commitments. PAYGO 
was triggered only with respect to new direct spending, not 
spending under existing law. I believe that if we look at the 
BEA process during the 1990s, the period that PAYGO was in 
effect, we will not find significant inroads made to existing 
commitments.
    Mr. Kogan. This is probably the one area on which Mr. 
Schick and I disagree most regularly. I have been disagreeing 
with him on this issue for a few decades and will probably 
continue to do so as long as both of us are kicking. Let us 
look at it first from a CBO perspective and institutional 
perspective.
    To my mind, the fundamental budgetary question, not the 
public policy question, that you, a Member, ask when someone 
proposes some complicated change to Medicare is whether a yes 
vote would be more expensive or less expensive than a no vote. 
You really have to know the sign attached to your vote, and 
that is by definition a question of existing law. The no vote 
maintains existing law. The yes vote changes law. Does that yes 
vote make Medicare more expensive than it would otherwise be or 
less expensive than it would otherwise be? That is the only 
possible budgetary question that I think you can ask and CBO 
can answer; well, they can quantify it.
    But if you take Mr. Schick's view in which--as I interpret 
it--the baseline is not a reflection of current law, but a 
reflection of something else, then saying whether a bill will 
be above or below baseline doesn't tell you whether your yes 
vote will increase spending above what it would otherwise be or 
decrease spending below what it would otherwise be.
    Likewise, with revenue, a complicated change in the tax 
law, does it lose revenues, or does it gain revenues? You need 
an estimate. And even if it is unstated, the question has to be 
relative to existing law. And for that reason I think CBO is 
doing the only thing it can possibly do, which is to tell you, 
when it makes cost estimates, whether these bills will make the 
laws more expensive or less expensive than they would otherwise 
be, because that is what we do in Congress, we vote yes or we 
vote no. I mean, that is the simplest way to define a Member of 
Congress, as a voting machine. And that is, therefore, the 
fundamental budgetary question that needs to be answered.
    Would sunsets help? On balance I am against sunsets. Most, 
a variety of major laws, and particularly the ones that are 
most expensive and most problematic in the long term, are ones 
that should logically be long-term commitments. It should 
logically be that retirement and pension programs, in which you 
pay in your entire life in the form of payroll taxes or other 
taxes, and expect some sort of insurance and pension and health 
coverage later, should be a commitment. We shouldn't say that 
we are going to have you pay in for a decade or two decades, 
but besides that there is zero promise that the program will 
exist in any form whatsoever when you retire. It wouldn't be 
logical.
    And for the rest of the budget, it really doesn't matter. 
Our entire budgetary problem over the course of the coming 
decades is that Social Security, Medicare, and Medicaid will 
grow faster than the revenue base. All other programs in 
Congress taken together will grow slower than the revenue base. 
There is no long-term problem even with the existing current 
level of deficits were it not for Medicare and Medicaid, and to 
a much lesser extent Social Security, and yet those programs, 
by their design, should have benefit formulas and should be 
permanent. So the real question is, do we examine these three 
programs adequately?
    Well, I think Mr. Schick answered that question. Medicare 
is the most legislated program that exists. We look at it all 
the time. The President, to his credit, is saying let us look 
at Social Security, you know, at least partly as often as we 
look at Medicare, though I don't like any of his proposals for 
Social Security, but at least looking at it is the right thing 
to do. And this Congress, to its credit, is saying we should 
look at Medicaid. I think Medicaid is underfunded. But on the 
other hand, given its cost trajectory, unless you would do what 
I would do, which is raise taxes on myself to pay for Medicaid, 
which I would happily do, then you have to start looking at 
Medicaid cost growth and figuring out a way to deal with it. 
This is why I think that sunsets is not a plausible answer, but 
rather real budgeting is the answer.
    Mr. Frenzel. Mr. Congressman, I think when you question 
baselines, you raise one of the most important questions in 
budgeting. I said in my earlier remarks that baselines actually 
freeze in the past. They restrict the ability of Congress to 
set priorities because Congress is tied to the priorities of 
the past. Yes, you give COLA (cost-of-living adjustment), 
demographic gain, the whole business, all wrapped up in this. 
Net result is there is no room for new worthy projects, or 
there isn't enough room for those projects.
    The baseline theory was promoted very heavily when the act 
was begun by liberals who believe they needed to keep--using 
Mr. Kogan's argument that we had good programs that needed to 
be maintained, and we couldn't, we couldn't let the Budget Act 
pull the plug on any of them.
    The result is, we have all become slaves to the baseline. I 
think it ought to be amended, ought to be changed by act of 
Congress, and do what you want with it. Give it a 10 percent 
haircut every year. Start there.
    The smartest guy about budgeting that ever came to 
Washington was Jimmy Carter who said we ought to have zero-
based budgeting, start at nothing every year and see if you can 
justify those programs. They laughed him out of town 4 years 
later.
    With respect to the concept of baseline, in 19--I think 
67--my historians here will check me on this--I think President 
Johnson appointed a thing called a Budget Concepts Commission; 
and that is the last time we have ever had anybody, any 
commission or really public group, try to talk about budget 
concepts.
    I think baselines are a great example of what a Budget 
Concepts Commission could do to restore some order to 
budgeting, and I will pass this on to you that this committee 
ought to inaugurate legislation to create a commission. 
Because, if it doesn't, some President will come along and do 
it some time, and then you won't have any membership on the 
commission. So I hope that we will take some action in this 
regard.
    With your question about sunsets, I would sunset 
everything. And, obviously, that is an overstatement. There are 
a few things that shouldn't be sunsetted. But we have no way of 
looking at mandatory spending unless there is a crisis.
    In 1982-1983, we ran out of money for Social Security; and 
we made some necessary changes. Liberals and conservatives got 
together, made a deal; and we did it. Obviously, it only lasted 
25 years or so, and we are in trouble again, but 25 years isn't 
bad.
    Somebody said that Medicare is the most worked-on program 
in Congress. Probably it is. But I can remember 10 years 
working on Medicare and reconciliation, and the changes that 
were made were infinitesimal, marginalia, and had no effect on 
the program whatsoever other than in the immediate year saved a 
couple billion dollars.
    We really need a way to get to look at these programs. 
Right now, it is a catastrophe that will do it to us. Maybe it 
would not be a bad idea to sunset.
    Chairman Nussle. We actually tried a concepts commission as 
an amendment a few years ago. We weren't able to--so we may be 
able to try that again. At least a worthwhile consideration, at 
least I thought it was.
    Mr. Frenzel. I think it is a good way for Congress to 
defend itself against the appointment of a commission by the 
President where you might not be participating.
    Chairman Nussle. Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman.
    I have always respected former President Bush. Because in 
1990 he realized that the future, the economy of this country 
and the legacy we left for our grandchildren was more important 
than a campaign promise he made of ``read my lips, no new 
taxes,'' and I think that bipartisan summit that he brought 
together in 1990 laid the first layer of foundation for 
eventually having balanced budgets later in that decade.
    Let me make a couple of observations why I think we are at 
that place again where we absolutely must have bipartisan 
cooperation, including the President's leadership, in solving 
the budget deficit. Then I would like to ask each of you 
whether you think the circumstances are such that we ought to 
do once again what President Bush and Democrats and Republicans 
in Congress did in 1990 with a bipartisan deficit budget 
summit.
    My first observation is this: We are at an impasse. We have 
the largest deficits, nominal deficits in American history, 
over a billion dollars a day; and if you look at the budget 
projections, they go on out as far as the eye can see. I am 
convinced it is so serious, if we don't do something fairly 
soon, we are going to harm our short-term economy and our 
grandchildren's future.
    The second observation: Why are we at this impasse? I think 
there are several reasons: health care costs, the war in Iraq, 
September 11. No doubt about it. The bottom line is, on one 
hand, Republicans simply don't have the political will or 
ability in Congress to cut spending enough to pay for their tax 
cuts. They could cut spending enough today to balance the 
budget this year without a single Democratic vote in the House, 
but the reality is they can't get the votes to do that, and 
probably for good reason. The American people wouldn't accept 
those values and those kind of draconian cuts.
    Secondly, I think Republicans are afraid if they don't 
extend the temporary tax cuts Democrats will find a way to 
spend all that extra money.
    The second reason we are in an impasse is that Democrats 
that might be willing, such as Mr. Spratt and myself, be 
willing to accept some entitlement limits and tough spending 
cuts won't do it as long as there is no guarantee that those 
tough spending cuts on the elderly and working low-income 
families and children's health care, those cuts aren't made at 
their expense simply to fund a $220,000-a-year tax cut for 
somebody that makes $1 million this year on dividend income.
    So we are at an impasse. They are in a position, for the 
reasons I mentioned, not to give; and they can't unilaterally 
solve the deficit problem. The political consequence would be 
too draconian. Democrats aren't willing to make sacrifices 
because we aren't sure that those spending sacrifices wouldn't 
just fund more tax cuts for the wealthiest.
    So where are we? I think, if we are serious, we ought to 
agree--and I would sign a letter today, the chairman of this 
committee or any other Republican member of this committee, 
saying I would support a bipartisan budget summit, including 
the President, Democrats, and Republicans in the House and 
Senate, designed after the 1990 summit. If anyone has a better 
idea, if my Republican colleagues have a better idea, I would 
say to you that you don't need a single Democratic vote to 
solve the deficit problem. But I think we are in this problem 
now together. I won't focus on how we got there, but we are in 
it together. I think neither party can afford the consequences 
of trying to solve it singularly within their own party.
    Let me, having made those observations, ask you your 
thoughts. And, Mr. Frenzel, you may have been very intimately 
involved in that budget summit. Is it time for us to try to 
replicate the budget summit of 1990 on a bipartisan basis, 
including the President, to solve this problem?
    I will make one prediction. If we don't do this, we will be 
having the same discussions 5 years from now, and the deficit 
will still be over $1 billion a day, and our grandchildren will 
have paid a terrible price.
    Mr. Frenzel. Thank you, Congressman. That is a good 
question. I was indeed present at Andrews Air Force Base. That 
was one of the reasons I left Congress, was that unpleasant 
experience.
    I think any kind of bipartisan work is always something 
that I would endorse; and any calls for bipartisan compromise 
discussion, even a fist fight, are good if we do them together. 
However, the conditions are not the same as they were then. In 
that time, there was a Republican President; and there were 
Democrat majorities in both House and Senate.
    If you had a summit today, you would have a Republican 
President dancing with his friends, the Republican majorities 
in both House and Senate, and you would endure what I endured 
at Andrews Air Force Base as the outside oppressed minority, 
and the decisions would be made around you and through you and 
over you. So, you know, the----
    Mr. Edwards. What are the alternatives?
    Mr. Frenzel. Negotiations at Andrews were between the 
President's people and the Democrat managers in the Congress. 
Mr. Kogan mentioned Tom Foley as being one of them.
    I remember particularly them negotiating the caps between 
then OMB Director Darmon and Senator Byrd, and that was really 
an interesting confrontation. Darmon got his caps, but Byrd 
sure got some high numbers in there before he surrendered. So 
it is different. I think if you called a meeting now, all you 
are doing is meeting three Republican power centers; and it is 
probably not going to do what I think you would like to do.
    Mr. Edwards. So the Republicans meeting on a bipartisan 
budget summit couldn't agree to find a solution to the problem, 
which is exactly my point. But I appreciate your observations. 
I recognize it is a different situation.
    Mr. Schick. Since we talked earlier about keeping 
commitments--and commitments should be changed in order that 
the budget be on a sustainable course in Congress and the 
President be able to make choices. But every time you want to 
make a significant change in commitments, you need the 
fingerprints of both parties on it. Otherwise, you will not 
succeed. This is a lesson that the 2005 Social Security episode 
will remind us of, and is not the first time in American 
history that this has occurred. That is why the budget summit 
of 1990 worked. Each side gave something; each side got 
something.
    At some time in the future we will pay serious attention to 
deficit reduction but only if we do it in a bipartisan mode. I 
would not preclude bipartisanship even if the majority party 
controls both branches of government. I think it can have an 
open-door policy, an open-mind policy. The bilateralism which 
we talked about, PAYGO rules, would be a good first step to 
reassure the Democrats that they have something to gain through 
negotiation, not simply being in opposition.
    The other point I want to make is that changes can be made 
in the budget process to sensitize us to whether we are on a 
sustainable fiscal course. In my view, the current fiscal 
course is not sustainable.
    There are a number of countries where the government 
actually produces--either annually, in the case of Britain; 
every 5 years, in the case of Australia, a fiscal 
sustainability report. The European Commission produces a 
fiscal sustainability report on every member country every year 
looking 30 to 50 years downstream.
    Such a report should be modeled after the trustee's report 
on Medicare, Medicaid, and Social Security. It should be 
bipartisan. It would command public attention: Are we on a 
sustainable fiscal course? So the report won't tell us what to 
do about it, but it would call attention to the issue.
    Mr. Kogan. At the risk of being flip, I think that the 
problem is Hollywood and TV cameras in the House and the 
Senate. I am glad you understand where I am going with this.
    Mr. Edwards. Sound bites.
    Mr. Kogan. Yes. And not just sound bites. Hollywood in the 
form of entertainment defines struggle between good and evil, 
the Jedi and the dark side of the force, and so on, as 
something that is really fun to watch on TV or watch in a movie 
theater. And I think that this tendency reinforces in the 
American public the tendency to view political discussion as 
our side against their side as though it were the Red Sox 
against the Yankees, for example, as though the Yankees really 
were the evil empire.
    None of that is, of course, true. Compromise is a virtue 
for its own sake. It is a virtue not merely because you can get 
something accomplished that way, because you can get some 
deficit reduction accomplished that way and deficit reduction 
is needed, but compromise is a virtue because it reminds us 
that we are all Americans and that differences of viewpoint are 
just differences of viewpoint and are not fights between good 
and evil, or the righteous and the nonrighteous, or people of 
faith and people of lack of faith, or whatever. I think 
Hollywood is leading us in the wrong direction because it is 
training the American people to want a good fight and one side 
to vanquish the other.
    On top of this, this leads to the natural political theory, 
which this President, despite his words, strongly believes. 
Which is that you should try to make the smallest possible 
winning coalition because then the spoils can be divided most 
narrowly among your friends and you don't have to spread some 
of the spoils among your opponents.
    I wish it were otherwise. I think, ultimately, it is up to 
the American public to stop this. It is the American public 
which nominates and then elects the most rabid partisans. 
Notwithstanding the way I was characterized, I only feel that 
way when I am getting kicked in the shins. The rest of the time 
I feel that I really would like to sit down with my 
counterparts on the Republican side, close the doors, turn off 
the TV cameras, work out a deal, and then try to sell it.
    Closing the doors and working out a deal and turning off 
the TV cameras is right. This is where Woodrow Wilson was 
partly wrong when he talked about open treaties openly arrived 
at. Yes, you have to know--you shouldn't have a secret treaty 
that is never known until you are at war. But, short of that, 
the process of sausage making really should take place within 
the sausage factory and not out in the open as a form of blood 
sport.
    Mr. Edwards. Chairman, thank you.
    If I could just say to you and take 30 seconds, since I 
have gone over time, but it seems to me that one common thread 
in all their comments is that there is an agreement that it is 
going to require ultimately, because of the size of the 
deficit, bipartisan solutions. And then the question would be 
raised: If I were the Republican President and Republican House 
and Republican Senate leaders, why would I want to require 
Democrats? My answer to that is: It would require Democratic 
input to give some credibility to some of the spending cuts so 
that you are not crucified for making spending cuts as you were 
last year when you offered a 1 percent cut and entitlement 
programs.
    Part of the question is, would Democrats be willing to come 
to the table? I can't answer that. But I wish somebody in the 
leadership in either party or both parties would try to make 
that effort to bring us together.
    Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Cooper, do you have questions for this 
panel?
    Mr. Cooper. Yes, Mr. Chairman, with your indulgence. Thank 
you.
    Chairman Nussle. Mr. Cooper.
    Mr. Cooper. When I look at 435 House Members, 100 Senators, 
I see a daunting prospect for fiscal discipline. Traditionally, 
the President has exercised a veto to curb congressional 
misbehavior. As you well know, this President has never used 
the veto, the first president since James Garfield in 1881 
never to have used the veto; and poor Garfield was only in 
office for 6 months. We are in the fifth year of the Bush 
presidency. So that sends a pretty powerful message to our 
colleagues here.
    There is another Presidential power that I want to focus 
on. That is the rescission power. As I understand it, under the 
Impoundment Control Act of 1974, Presidents have had an ability 
to single out congressional spending within an appropriations 
bill to send a message to Congress and, within 45 days, get a 
vote, a simple up or down vote, simple majority vote--in other 
words, it is filibuster proof in the Senate--on the targeted 
spending item. President Clinton used this power 163 times and 
in a divided government won 111 times. President Bush, to my 
knowledge, has never used this power.
    So if you take no vetoes and no rescissions, that sends a 
pretty powerful message to our colleagues here that the usual 
executive branch disciplinary techniques are not likely to be 
used.
    Now, to give President Bush credit, he has threatened a 
couple vetoes. One is over about $10 billion in a highway bill. 
Another is if we were to repeal the single greatest act of 
fiscal irresponsibility in this age, the Medicare drug bill, 
$8.1 trillion of unfunded entitlement spending supported by 
this President. And that is why the Cato Institute, among 
others, has entitled a recent report, ``The Grand Old Spending 
Party--How the Republicans Became the Big Spenders.'' And this 
is true even if you discount defense spending.
    So my primary focus is this rescission power. Why hasn't 
President Bush used it? Would it be a useful tool? Most 
Presidents like to use all the tools in their arsenal. Here the 
President has willingly foregone at least two of the major 
tools that he has. And, you know, to me, an external restraint 
is going to be helpful for this Congress if we are going to 
make any budget process work.
    Would any of the panelists care to comment?
    Mr. Kogan. Mr. Cooper, let me start by talking specifically 
about rescissions. What you described is known as the enhanced 
rescission process, but it is not in law. Under the Impoundment 
Control Act as it now exists, the President isn't guaranteed a 
vote. He can send a rescission message to Congress, he can 
withhold the funds for 45 calendar days of continuous session, 
which tends to run about 60 to 90 days, but, after that, if 
Congress does nothing, then he has to release the fund. OK? And 
so Congress wins by doing nothing, which is one of the things 
that Congress is exceptionally talented in doing. And, 
therefore, that could be one reason that President Bush hasn't 
felt that it would be a particularly useful way to go.
    Mr. Cooper. Are you implying that he is afraid of Congress?
    Mr. Kogan. I'm implying that he wouldn't be successful, in 
which case he would be annoying people without achieving a 
budgetary goal.
    Mr. Cooper. If the President were to single out spending 
items--for example, Senator Grassley's $50 million indoor rain 
forest in the great State of Iowa, that he would not be able to 
prevail on that vote and get a simple majority of Republicans 
in both Houses, and perhaps a lot of Democrats would join in.
    Mr. Kogan. I have two questions. One is, why would the 
Appropriations Committee in the Senate bring that bill to the 
floor when the members of the Appropriations Committee have to 
deal with Senator Grassley, the chairman of the Senate Finance 
Committee, on all sorts of important issues? Why would they go 
out of their way to antagonize the chairman of the Senate 
Finance Committee over $50 million, which is not even a 
rounding error with regard to the President's budget?
    The second is, however, that right now the majorities in 
the House and the Senate are small. You can't really afford to 
antagonize any of your potential allies, and I think that that 
possibly may be going through the President's mind.
    If he had bigger majorities in the House and the Senate, 
then he could probably much more easily pick out projects here 
and projects there and programs here and programs there--it is 
not just projects that are subject to rescission--and get away 
with a temporary, even 1-year annoyance of a Member here and a 
Member there and even a key Member somewhere else. But with 
small majorities, you have to do everything you can to keep 
them together if you want to govern on a purely partisan basis, 
which this President does; and therefore he has to swallow 
stuff that he otherwise would not be interested in swallowing.
    Mr. Schick. The only time in the last 30 years that 
rescission was effective was in the first year of the Reagan 
Presidency. Throughout the entire history of congressional 
budgeting, for every dollar rescinded by Congress pursuant to 
Presidential proposal, Congress has rescinded $3 or $4 on its 
own. The evidence is that the current rescission power does not 
arm the President with very much, but I do think that the veto 
power is extraordinarily effective both when it is used and 
when it is threatened. And if we look at the SAPs, the 
Statements of Administration Policy, where the President sets 
out his position on pending appropriations bills we find that 
the level of veto threats from the current President is far 
lower than those from his predecessors; and I believe Congress 
reads between the lines of these Statements of Administration 
Policy and concludes, it has nothing to fear, and has license 
to spend what it wants.
    Having said this, I believe the President should have a 
more active, vigorous veto posture. But, keep in mind what Mr. 
Kogan said earlier, that over the next 30 or so years the 
entire risk to the budget is concentrated in three programs, 
and those programs are not subject either to rescission or to a 
veto. Those are not effective tools for dealing with them. To 
put the budget on a sustainable course, Congress will need 
additional tools.
    Mr. Frenzel. I think you have got some wonderful answers 
from these panelists. I have always thought the rescission 
power was a joke and it didn't give the Congress anything, it 
left all the power with Congress. And I am astounded to hear 
you say that President Clinton used it all those times. He 
certainly did it quietly, because I don't recall any enormous 
savings flowing from the----
    Mr. Cooper. There were several billion dollars saved.
    Mr. Frenzel. Well, a billion here and a billion there is 
important, I think.
    But I also agree with Allen on the subject of the veto. 
Presidents--it is a very powerful weapon. A President should 
use it occasionally, and I think fiscal sobriety is a great 
cause for using the veto. I wish he would use it much more 
frequently.
    I think one of the restrictions is that Presidents and 
their people never like to lose. They hate to be seen making a 
big case and then get overridden, and there is probably some 
natural reluctance, has been at least in some of the White 
Houses I have been familiar with. But I think a President has 
got to lead, and I certainly hope the President doesn't get 
through his term in Garfield-like style.
    Mr. Cooper. With the Chairman's indulgence, this is the 
President who said he had a lot of political capital and he was 
ready to spend it. Are you telling me that, unlike with 
President Reagan who showed real leadership on rescission and 
other Presidential powers, that this President hasn't been able 
to find one misguided congressional spending project in 5 years 
that he could perhaps muster a simple majority to uphold his 
rescission of? Surely there is something that they could have 
found to send a message to Congress that they will not tolerate 
much foolishness. But no such message has been sent.
    Mr. Frenzel. I don't deny that it is possible that he could 
have found something, but I also wonder about the comparison to 
President Reagan. I can only remember one veto of his, which 
was promptly overridden. It was a highway bill which this 
President is not threatening to veto. And, you know, veto is a 
powerful weapon. It doesn't always work, though. And I wish he 
would do it. I wish he would use rescissions. I think the 
rescission is a cream puff of a weapon, and I would rather have 
him concentrate on this.
    Mr. Cooper. I thank the Chair.
    Chairman Nussle. I have rarely had to try and defend a rain 
forest in Iowa, particularly one that wasn't in my district, 
but I am sure there were probably billions of dollars that went 
to the Tennessee Valley Authority (TVA) that could have been 
the subject of revisions, rescissions, vetoes or all sorts of 
things. So I think there is probably enough largesse that goes 
around to all States, I would just remind the gentleman.
    This has been a great hearing, and I really appreciate the 
spirit in which you have approached this. You have given I 
think some very objective testimony to the members who were 
here today and were interested in listening. One of the reasons 
why I didn't want to ask questions to start with, is that I 
wanted to have a chance to listen to all the give and take, and 
I thought it was fascinating.
    I have four categories of the advice you have given us 
today. One is, the rules should be fair, that is kind of what 
you have said. I realize that may sound overly simplistic, but 
I think it is fair to say that.
    In other words, the rules should fashion an objective 
decision at the end of the day, not a subjective or partisan 
outcome. I think all of you have said that, even though each in 
your own right and in fairness are partisans and should be--I 
am--we all are. I appreciate the way you are giving us the 
advice, particularly in the PAYGO discussion. We peeled the 
onion back beyond the should it be extended or should it not be 
extended to the nuances of, if we are going to extend it, let 
us talk about maybe some of the tangential issues that could 
arise as a result. For instance, coming to a surplus back in 
1990 which was not contemplated, it wasn't even close to 
contemplated. Which in part precipitated the fact that we 
allowed PAYGO to lapse because the rules to some extent were 
not as relevant during the time of surplus as they were during 
the times of deficit. You could argue that they are, but maybe 
in a little bit different context.
    The bottom line is you have given us some good advice that 
the rules should be objective and not predetermine an outcome, 
predetermine a tax cut outcome, predetermine a spending 
increase outcome, predetermine a particular partisan 
substantive outcome, and I think that is good.
    The second is that we ought to have good information. Good 
information, whether it was your baseline, whether it is what 
CBO provides you on a bill-by-bill basis or as we look long 
term. You have given us some great ideas in that regard.
    In particular, I have been frustrated with the--and 
Professor Schick, you in particular gave some great testimony 
regarding this issue, as did Bill Frenzel, from a practical 
standpoint of how just because of a score keeping outcome we 
fashion a policy decision. Or, in order to achieve an arbitrary 
financial outcome, we make what would otherwise be maybe a 
nonsensical policy decision in the final throes of a 
negotiation of a conference. Let us make it fit; and the way to 
make it fit is to phase it in, apply it here, apply it there. 
But, as a result you make, in some instances, huge mistakes in 
the final determination of policy as a result of the making-it-
fit quotient.
    The third one that I really liked is the issue and I will 
give you equal time if I am misinterpreting any of these--
regardless of the rules or regardless of the final substantive 
outcome of the budget process, enforce it is kind of what I 
heard you say. And this should be a role that we do not shrink 
from.
    The final one is how do you make better choices, and that I 
think is the toughest part. I think that is really what this 
comes down to. And all of our machinations of trying to come up 
with rules or good information, enforcement or whatever, it 
still does come down to throwing everything out, is the 
Constitution. That is 435 people in the House, 100 in the 
Senate, and the President are trying to make choices, pluses 
and minuses here and there, and policy determinations, because 
the rules other than the Constitution can all be waived, can 
all be broken, can all be changed, can all be fashioned in a 
way to achieve something that one particular party or partisan 
objective wants to achieve.
    That is the tough part. There is almost no proposal that I 
have come up with or that I have seen that really gets around 
that final category, and that is how do we make better choices? 
I have heard of a lot of reasons why we failed as a Federal 
Government or as a Congress. I have heard everything from C-
SPAN, that I actually, before the discussion came up, wrote 
down. I love C-SPAN. If they are carrying us, I am not making 
any disparaging remarks because they may change my name under 
the title or something like that. It is a great and fantastic 
camera on the process. But, as you said, it has definitely 
changed the outcome because we are on cameras.
    The other ones I have heard are air conditioning and air 
travel. As soon as air conditioning was created, the fiscal 
year was expanded, and we were here longer into the summer. And 
the other one is air travel because it allowed us to go home as 
opposed to staying out here and having the conversations and 
the discourse.
    So now I add to that the Richard Kogan--and that is the 
budget process has now made it more difficult for us. I haven't 
heard that one before, but I am going to add that to my arsenal 
of reasons why we are melting down.
    But I am not sure I agree on the partisanship. I don't 
know, this is something I have got to think about. I have been 
thinking about it the entire time: Does the budget actually 
make it harder for us to come together or not? And I guess I am 
leaning in favor of your comments that it actually does.
    I think--Mr. Edwards is no longer here. Otherwise, I would 
say this to him, I think if he and I were locked in a room, 90 
percent of the discussion would be over in the first 5 minutes. 
We could come to--and I think that is true with Mr. Spratt and 
with many of us, that on any good day, 60, 70, 80 percent of 
the discussion about our budget priorities and choices could 
probably be made fairly quickly.
    All you have to do is watch the votes on the floor, and 
watch the appropriation bills. We put in one of the toughest 
budgets on discretionary spending in over a generation, and 
they are passing on the floor with flying colors. Yet during 
the budget discussion there was gnashing of teeth and wringing 
of hands on all sides about how the cuts weren't good enough or 
the cuts were too much. But now they are passing with 380 votes 
to whoever is left to wave the flag against them, it is 
amazing. Meaning to me that, as I say, 60, 70, 80 percent of 
the discussion is done and could be done in a nonpartisan or 
bipartisan way. It is those last little nuances that are the 
toughest parts.
    I don't know how you improve that, as I say, that fourth 
category or how you could do it with a Budget Committee. I 
don't think getting rid of the committee is the way to go. I 
know you were giving that out as kind of a devil's advocate or 
at least to be provocative. And it is a fair discussion, 
because since it has been only in its inception since 1974, it 
is always fair to review it.
    But I do think you have given us some good suggestions 
today as ways to move forward. I wish I could tell you that I 
see a path toward making the reforms. I tend to agree with you 
that if it is not done in a bipartisan way that it is going to 
be very difficult to sustain them and have any kind of 
predictability long term.
    I am less worried about the partisanship than I am the turf 
battles in achieving reform for the budget process, meaning I 
am more concerned about what the Rules Committee's objectives 
are or the Appropriations Committee or the Ways and Means 
Committee or the other authorizing committees. I am probably 
more concerned about those turf battles--some are partisan, 
some are bipartisan turf battles--as I am the purely Democrat 
versus Republican turf battles that go on around here. At least 
in my judgment I have seen more difficulty in reaching 
agreement as a result of those kind of jurisdictional turfs 
than I have seen with purely partisan philosophical 
discussions.
    So much of your testimony was--I don't want to make it 
sound like, therefore, it is irrelevant, but you have repeated 
yourself often today. You have often repeated yourself over the 
years. As Mr. Frenzel has said, this is--to some extent, he has 
been here and done this many times. But we appreciate it, 
because we do have a lot of new members, and we have a lot of 
good staff. It is good to hear that historical perspective. It 
is good for me, and I have heard it probably as much as any 
member on the committee. So I greatly enjoyed and appreciated 
your testimony today.
    I will give you each a last word of summation if you would 
like, either based on what I have said or any other comments. I 
guess let me ask it in the way of a question. This may be 
unfair, but since you have talked about it so much, I am going 
to give each of you a magic wand. You have got one proposal 
that you would give me as your advice of the one thing we could 
do. I know it is an unfair question, but I am going to ask it 
anyway because it is my prerogative. Kind of the one silver 
bullet, if you will, of the thing you would change. Would it be 
the baseline? Would it be PAYGO and caps? Would it be do away 
with the committee and throw it all out and start over? Is 
there one proposal that you could advise us as kind of the bane 
or the frustration or the one thing that you would hope we 
would definitely add as part of any proposal as we go forward?
    Let me start with Richard, and we will go across and 
opposite of the way you testified today.
    Mr. Kogan. Thank you, Mr. Chairman.
    I think I would start with my last proposal, which is to 
limit reconciliation to achieving deficit reduction. Maybe put 
a minimum deficit reduction target in the Budget Act. You know, 
a half a percent of GDP or a quarter a percent of GDP by the 
fifth year or something like that and say you don't do a 
reconciliation bill unless that bill achieves that much deficit 
reduction.
    Chairman Nussle. On that point, since you have made it now 
twice, isn't that different than--and I don't mean this as a 
challenge, I am really not trying to say it that way. Isn't 
that a different philosophical position than many Democrats 
held in the 1980s where deficit targets were--and maybe they 
are just different in your mind because you are focusing them 
on reconciliation. But my understanding is that they are at 
least similar enough that it is kind of a little bit of a 
change in philosophy from the late 1980s?
    Mr. Kogan. I think it is more a change in philosophy from 
the early 1980s, but I think that is a valid point you make. In 
the early 1980s, particularly, some Democratic leaders--I am 
thinking specifically of Jim Wright--definitely wanted to use 
the budget process to achieve a major expansion of what he 
called anti-recession public works projects during the residual 
effects of the early 1980s recession. And he also wanted to use 
the budget process as a way of getting the Appropriations 
Committee to actually change the priorities in appropriations 
bills.
    When the budget resolution took money from one function and 
put it in another, which is, of course, nonbinding, he said, it 
may be nonbinding, but this is a clear statement of what we 
want. We want more in the Labor-HHS Appropriations bill 
specifically for education programs but also for certain other 
antipoverty programs. And I on behalf of the leadership am 
going to you, the chairman of the Appropriations Committee, and 
am going to tell you you are not doing your job if you just do 
the appropriations bills the way you want to do them. You have 
to do them the way we, in writing the budget resolution, want 
to do them.
    This wasn't really a reconciliation process, but 
thematically it is similar to what you are talking about, using 
the power of the Budget Committee and the budget rules to try 
to accomplish goals that, in this case, both accomplished 
spending increases.
    In actual fact, in the 1980s, reconciliation itself was 
only used for net spending cuts and net tax increases. So it 
was only used for net deficit reduction. Sometimes the amount 
of deficit reduction in a reconciliation bill was so little 
that the inherent abuse that a reconciliation bill is to the 
normal committee process of the House and the entire 
legislative process in the Senate, made it sort of not worth 
it. Reserve reconciliation for real deficit reduction, and then 
do it, is basically my recommendation.
    Chairman Nussle. Why is your--and I know you are not a fan 
of President Bush, and that is pretty obvious. But why isn't 
the thematic deficit target of cutting the deficit in half in 5 
years not a deficit target? You know the number, I know the 
number, and the American people know the number. The committee 
is working toward that number. Why is that not a deficit 
target?
    Mr. Kogan. That is both a very good question and also a 
very clever question. I was talking about deficit reduction, 
and I defined it in my own mind, and probably not explicitly 
enough in front of the committee, relative to a baseline. You 
heard me make an impassioned statement that, by definition, 
Congress has to know whether its votes are going to make 
something more expensive or less expensive than it would 
otherwise be. I want Congress to enact legislation that would 
make deficits lower than they would otherwise be.
    Under CBO and OMB projections, the deficit is going to fall 
in half, more than in half all by itself if you do nothing. My 
view is that that is inadequate because that is just a dip 
before you get back to the long-run, overarching, unsupportable 
difference between our spending commitments and our revenue 
levels, and that we have to go beyond a 50-percent drop in the 
deficit to help prepare ourselves for the baby boomer 
retirement.
    It is going beyond that 50-percent drop that I want. I want 
to enact legislation that would raise taxes and cut 
entitlements so that the deficit would fall faster and further. 
Your budget and the President's budget actually retard the rate 
at which the deficit would otherwise fall. From my perspective, 
they increase deficits because your tax cuts are larger than 
your entitlement cuts, even though the deficit will, after they 
are enacted, if projections are accurate, probably fall in half 
over that period. So we were talking in some senses past each 
other.
    Chairman Nussle. Professor Schick.
    Mr. Schick. Yes. First, let me endorse what Mr. Kogan said 
and offer an explanation. Congress does not need special 
procedures for increasing the deficit, for raising spending, or 
cutting taxes. The House and Senate can always marshal a 
majority for them. It is much harder to cut spending or to 
raise taxes. Therefore, I would reserve reconciliation for 
those purposes and impose a Byrd-type rule in the House. I 
think both Chambers would be advantaged.
    But my silver bullet would be to combine aspects of Gramm-
Rudman and BEA, to create a budget envelope or fiscal 
constraint for Congress, and here is why. If these rules are in 
place, it is easier for politicians to make the tough choices. 
What you don't want a budget process to do is to complicate the 
life of someone who has to stand before voters and make hard 
decisions.
    Chairman Nussle. Something else to blame: I had to do it 
because of this rule. Even though you know we can change it. 
That is what you are saying, use it as the bad cop.
    Mr. Schick. Preset rules which apply both to the President 
and to Congress would make it easier to discipline the deficit. 
As I said earlier, I don't believe Bill Clinton would have 
behaved the way he did absent those rules.
    Chairman Nussle. I am not sure he would have behaved that 
way without a Republican majority, either.
    Mr. Schick. One final point, back to reconciliation. I 
recall that, in 1993, Democrats in Congress toyed with the idea 
of making the President's health care proposal into a 
reconciliation bill. If they had done so, his health reform 
would have become law. We would have it on the books. Of 
course, health reform did not contribute to deficit reduction, 
but the President would have had a free path to employ it in 
Congress.
    For some reason, the leadership in Congress decided that it 
was wrong to use reconciliation for this purpose. That 
demonstrated that forbearance is the most responsible weapon of 
a majority party.
    Chairman Nussle. Mr. Frenzel.
    Mr. Frenzel. Mr. Chairman, thank you for having us. I 
suppose all of us who have been here before understand you are 
sort of in the process of singing your swan song, and may I say 
that I certainly have appreciated your work on the Budget 
Committee. It is a miserable, frustrating job and one--when you 
assume the gavel, you only then realize how limited the powers 
of the Budget Committee chairman are. But you have conducted 
the office with great skill and grace, and I thank you for 
being willing to do it.
    With respect to your queries, as you went through the list 
of things that you thought you picked out of our discussion, I 
would like to concentrate on the third one, which is enforcing 
the choices. I think it is really important that the Congress, 
having passed a budget, tries to keep its promises to itself. 
The budget is nothing without the enforcement powers, and it is 
so easy for Congress to lay things aside. A simple little 
phrase like ``notwithstanding any other provisions of law'' 
sort of unlocks great doors to glory for spenders and tax 
cutters alike. So I hope that that is something the committee 
will concentrate on.
    If I had one thing to do, I might choose what Allen did. 
But since I think ultimately those are going to happen anyway, 
I would like to get back to the thought about the baseline.
    I somehow would like to release the Congress from the power 
of that baseline and put the Congress back in charge of 
priorities. Maybe you just start out by dumping the 
demographics and the COLAs and just start with last year, and 
even that would be a huge improvement. Again, marginal but 
important. So I would suggest that is a way the committee might 
look at the problem.
    Again, I want to thank you and the members of the committee 
for an enjoyable morning.
    Chairman Nussle. I thank our witnesses and the members who 
have participated today.
    Mr. Frenzel. Oh, and by the way, I should have wished you 
good luck in your next----
    Chairman Nussle. That is nice of you but completely out of 
order. There is no swan song yet, we have got work to do, and I 
appreciate your advice on this work.
    I have tried to move legislation on reforming the budget 
process a number of years. This year may be no different than 
that. We will hopefully have the opportunity to make an 
attempt, if nothing else. But your ideas and good counsel has 
been appreciated today and will be appreciated in ongoing 
fashion. We realize--the people who are probably left in the 
room more than any others--how important this process is and 
how relevant it is to us. I think, in particular, Professor 
Schick has been so significant to the last 30 years of 
Washington, the Congress, and the Federal Government, and 
sometimes in a good way, sometimes in maybe not quite so 
positive way. But it has certainly been one of the most 
significant--and if you don't understand it, if you don't 
follow it, if you are not a student of it, you may miss some of 
the relevance of what is happening in Washington at the time. 
So I appreciate that.
    I think you are exactly right, and it is why this hearing 
is so important. But it may also be the least glamorous hearing 
on the Hill, but I appreciate the testimony you have provided 
us today.
    Unless there is anything else to come before the committee, 
without objection, we will stand adjourned.
    [Whereupon, at 12:50 p.m., the committee was adjourned.]

                                  

```