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24–443 PDF 2006

S. Hrg. 109–586

GUNS AND BUTTER: SETTING PRIORITIES IN FEDERAL SPENDING IN THE CONTEXT OF NATURAL

DISASTER, DEFICITS, AND WAR

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 25, 2005

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 10

WITNESSES 

TUESDAY, OCTOBER 25, 2005

Hon. John Shadegg, a Representative in Congress from the State of Arizona .. 12

Hon. Charlie Stenholm, Government Affairs Advisor, Olsson, Frank and 

Weeda, P.C., and Former Representative in Congress from the State of 

Texas ..................................................................................................................... 15

Roger Pilon, Vice President for Legal Affairs, B. Kenneth Simon Chair in 

Constitutional Studies, and Director, Center for Constitutional Studies, 

Cato Institute ....................................................................................................... 20

Daniel J. Mitchell, McKenna Senior Fellow in Political Economy, The Heritage Foundation ..................................................................................................... 24

ALPHABETICAL LIST OF WITNESSES

Mitchell, Daniel J.: 

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 80

Pilon, Roger: 

Testimony .......................................................................................................... 20

Prepared statement .......................................................................................... 63

Shadegg, Hon. John: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 48

Stenholm, Hon. Charlie: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 55

APPENDIX 

Chart submitted by Senator Coburn entitled ‘‘Burden of Government in the 

E.U. and the U.S.’’ ................................................................................................ 8

Chart submitted by Senator Carper entitled ‘‘Closing the Hurricane Gap’’ ....... 9

Article entitled ‘‘Getting Serious About Deficits?’’ by Robert Greenstein, Center on Budget and Policy Priorities, October 6, 2005, submitted by Senator 

Carper ................................................................................................................... 37

(1)

GUNS AND BUTTER: SETTING PRIORITIES IN 

FEDERAL SPENDING IN THE CONTEXT OF 

NATURAL DISASTER, DEFICITS, AND WAR 

TUESDAY, OCTOBER 25, 2005

U.S. SENATE, 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:42 p.m., in room 

342, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman 

of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF CHAIRMAN COBURN 

Senator COBURN. The Subcommittee hearing will come to order. 

Senator Carper will be here. We have had a vote on the floor and 

I apologize to our witnesses as well as our guests for our tardiness. 

Where we are—the need for priority setting. We are a Nation at 

war. We face trillions of dollars in unfunded liabilities of our entitlement programs. As a matter of fact, the unfunded liabilities now 

exceed the private net worth of the United States. We are recovering from the worst natural disaster in our Nation’s history. Since 

2001, the non-defense, non-homeland security government spending has increased 32 percent. Since 1998, it has grown 70 percent. 

Last year alone, we heaped another $2,000 per man, woman, and 

child in this country onto the Federal debt, individual share. The 

year before that, it was $1,700. 

The problem addressed in this book, which is written by Peter 

Peterson, called ‘‘Running on Empty,’’ argues that the appetite for 

spending is a fiscal train wreck waiting to happen. Well, it is here 

and it is time we started doing something about it. 

When I visit with Oklahomans, they make it clear to me that 

they are losing patience with the cavalier way that we sometimes 

are spending their hard-earned money. There is a rumble brewing 

outside Washington. Americans get it. The American people understand unrestrained government growth is endangering the future 

quality of life for their children and grandchildren. Unlike their 

elected officials, they do get it. They know that when unexpected 

financial obligations arise, priorities must be set. We are at that 

stage now as a Federal Government. 

2

I will never forget, as a freshman Member of Congress, I went 

to a budget hearing with Congressman Stenholm and we talked 

about priorities. Even though he was on the other side of the aisle, 

we both got it then and I appreciate him coming today. I will never 

forget my time in front of your committee. 

They know that sacrifices must be made, yet Congress seems to 

live in an alternative universe, where it is OK during the time of 

war and natural disasters to defend earmarks for things like sculpture gardens in bills that are intended to reduce homelessness for 

humans, and that is just last week. 

The General Welfare Clause of the Constitution could not be 

more clear about the finite powers of the Federal Government. 

When the Founders wrote in Article I, Section 8 that the government is to provide for the common defense and general welfare of 

the United States, they were not intending to create a nanny State 

that controls the lives of citizens from cradle to grave. In case there 

was any confusion, the Tenth Amendment should have cleared 

things up. The powers not delegated to the United States by the 

Constitution nor prohibited by it to the States are reserved to the 

States respectively or to the people. 

The Founders worried that abuse of the General Welfare Clause 

would lead to too much government. Thomas Jefferson, one of my 

heroes, wrote, ‘‘Congress had not unlimited powers to provide for 

the general welfare but were restrained to those specifically enumerated, and it was never meant they should provide for that welfare but by the exercise of the enumerated powers.’’ James Madison 

argues in the Federalist Papers that the enumerated powers are 

the finite list of Federal powers provided by the General Welfare 

Clause—the end of Federal authority, not the beginning. 

Former Assistant Attorney General Charles Warren in 1932 complained that Members of Congress saw themselves as Santa Claus. 

He actually wrote a book, ‘‘Congress is Santa Claus,’’ very interesting reading if anybody wants to go to sleep at night reading 

some interesting history. It seems that the problems we face today 

were the same problems that he described in 1932. He thought that 

the Congress was frivolously abusing the General Welfare Clause. 

He blamed this attitude for the rapid growth of government, including appropriations, and this is his words, ‘‘for any specially favored class, section, or interest which can secure a sufficient number of votes in Congress by appeals to philanthropy, by sectional 

bargainings, or by insistence on class privilege.’’

Federal spending at our current rate is unsustainable. Discretionary spending has increased, as I noted. What is more, one-quarter of total government spending now goes towards overhead. Onequarter of the $2.5 trillion Federal budget is staggering. A service 

sector industry such as the commercial printing industry spends 

roughly 10.7 percent on overhead. Why should publicly provided 

services require so much more in terms of bureaucracy to deliver 

than privately-funded services? I have argued repeatedly that today’s Federal spending is not only irresponsible, but it is immoral. 

The uncontrolled growth of government is responsible for the 

tanking of economies and quality of life for citizens of nations all 

over the globe. This poster shows the burden of the government in 

the U.S. and E.U. Let us look at one example, Germany, though 

3

there are many others, 49.4 percent of Germany’s GDP is taken up 

now by government spending. What are the consequences of that? 

Their unemployment rate is almost 11 percent. Their per capita 

GDP now is $11,400 lower than that of the United States. The U.S. 

per capita economic output is 30 percent higher than Germany’s. 

GAO’s extended baseline model shows us hitting 50 percent of GDP 

in the year 2060 in our country. When today’s high school students 

retire, they will face the same economic problems faced by Germany today. This is no gloom and doom prophecy, it is simply a 

matter of mathematical fact. 

Controller General David Walker writes in ‘‘Saving Our Nation’s 

Future’’ that last year, the government spent at a rate which averaged more than $1 billion per day. We are kidding ourselves if we 

think we are immune from most of Europe’s fate. 

In the early 19th Century, Congressman Davy Crockett of Tennessee took to the floor to argue against a bill that would have 

granted money to the benefit of a military widow. I hope you will 

indulge me as I read his statement into the record. This is just a 

portion of his learning from one Horatio Bunge. 

‘‘Mr. Speaker, I have as much respect for the memory of the deceased and as much sympathy for the sufferings of the living, if 

suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. 

I will not go into an argument to prove that Congress has no power 

to appropriate this money as an act of charity. Every member upon 

this floor knows that we have the right as individuals to give away 

as much of our own money as we please in charity, but as Members 

of Congress, we have no right so to appropriate a dollar of the public money. 

‘‘Some eloquent appeals have been made to us upon the ground 

it is a debt due to the deceased. Mr. Speaker, the deceased lived 

long after the close of the war. He was in office to the day of his 

death and I have never heard that the government was in arrears 

to him. This government can owe no debt for services rendered and 

at a stipulated price. If it is a debt, how much is it? Has it been 

audited and an amount due ascertained? If it is a debt, this is not 

the place to present it for payment or to have its merits examined. 

If it is a debt, we owe more than we can ever hope to pay, for we 

owe the widow of every soldier who fought in the War of 1812 precisely the same amount. 

‘‘There is a woman in my neighborhood, the widow of as gallant 

a man as ever shouldered a musket. He fell in battle. She is as 

good in every respect as this lady and is as poor. She is earning 

her daily bread by her daily labor. But if I were to introduce a bill 

to appropriate $5,000 or $10,000 for her benefit, I should be 

laughed at and my bill would not get five votes in this House. 

There are thousands of widows in the country just such as the one 

I have spoken of, but we never hear any of these large debts to 

them. 

‘‘Sir, this is no debt. The government did not owe it to the deceased when he was alive. It could not contract it after he died. I 

do not wish to be rude, but I must be plain. Every man in this 

House knows it is not a debt. We cannot, without the grossest corVerDate 0ct 09 2002 12:53 Sep 22, 2006 Jkt 024243 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\24443.TXT SAFFAIRS PsN: PAT
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ruption, appropriate this money as the payment of a debt. We have 

not the semblance of authority to appropriate as a charity. 

‘‘Mr. Speaker, as I have said, we have the right to give as much 

of our own money as we please, and I am the poorest man on this 

floor. I cannot vote for this bill, but I will give one week’s pay to 

the object, and if every Member of Congress will do the same, it 

will amount to more than the bill asks.’’

I am pleased to report that Congressman Crockett prevailed that 

day, changing the mind of the majority of his colleagues who had 

been planning to vote for the measure. I hope that that same integrity will prevail in this body, as well. 

[The prepared statement of Senator Coburn follows:]

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Senator COBURN. I want to thank our witnesses for being here 

today and I look forward to your dialogue. 

I would now like to recognize my Ranking Member and friend, 

Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. It is great to be here 

with you and it is also a special privilege to be here with our 

former colleague, Charlie Stenholm. 

Congressman Stenholm and I had the pleasure of working together along with Larry Craig when we were all in the House to 

draft the Balanced Budget Amendment to the Constitution, not one 

that mandated a balanced budget every year but one that said, 

starting at a date certain, the President had to propose a balanced 

budget and to say that the Congress could vote to unbalance the 

budget, but you would need a majority to do that, three-fifths vote, 

and a super-majority to raise the debt ceiling. I think we got within 

about a dozen votes of getting that through the House of Representatives. 

Later, Congressman Stenholm and I worked on passing the first, 

I call it statutory line item veto bill that enhanced the recision 

powers of the President and served as almost a test drive, if you 

will, for line item veto powers for the President, the first one, I 

think, that ever passed the House. It didn’t make muster here in 

the Senate, or at least not that year, but I know he has continued 

to be a champion for that proposal and all kinds of fiscally responsible measures. 

I thank our other witnesses for their presence here and look forward to each of your testimonies. 

Mr. Chairman, I am grateful that we are having this hearing and 

thank you for chairing it. 

We recently got some good news about our Federal budget deficit. 

About 2 weeks ago, we learned that the Federal budget deficit for 

2005 was only about $319 billion—I put that ‘‘only’’ in quotes—

rather than the $400-plus billion that some had expected at the beginning of the last budget cycle. That was the good news, only $319 

billion. The bad news is that a $319 billion budget deficit actually 

passes for good news in the environment in which we are operating 

today. 

This year’s budget deficit for 2006 may well be even larger, some 

say as much as $400 billion, and beyond next year, the story will 

be much the same, larger budget deficits adding to a growing national debt, particularly as guys like me, baby boomers, as our generation moves toward retirement and puts a real stress on spending in this country. 

How did the Federal budget end up in a ditch just when a little 

more than 4 years ago, we enjoyed budget surpluses for as far as 

the eye could see. I think it is really fairly simple. In terms of total 

government outlays under the current Administration, we have 

spent more, I think, than any administration, any Congress in the 

last 35 years, at least in the time I have been following these developments. At the same time, the Bush Administration is pushing 

billions of dollars in tax cuts, some unwise, thus reducing our revVerDate 0ct 09 2002 12:53 Sep 22, 2006 Jkt 024243 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\24443.TXT SAFFAIRS PsN: PAT
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enue base. Today, it is down to about 17.5 percent of GDP, which 

I think is the lowest since a bunch of us have been alive. 

The bottom line is that we are spending more than we are taking 

in, and as any family would tell us, that is a recipe for a budget 

that is out of balance, whether it is for a Federal Government or 

for a family. 

During my years in public service, I have always tried to reconcile my position on fiscal issues with the basic tenet that if something is worth doing, it is worth paying for. Unfortunately, neither 

the Bush Administration nor this Congress is following that principle. Instead, we are doing a lot and paying for too little of it. We 

are fighting wars today, as we know, in Afghanistan and Iraq. We 

are dealing with the aftermaths of Hurricane Katrina and Rita and 

soon Hurricane Wilma. We are implementing a new drug benefit 

for senior citizens and paying for recent tax cuts with money that 

we are borrowing from countries like China, like Japan, like South 

Korea, just to mention a few. In a sense, the world is paying our 

bills. 

This can’t last. We have to someday begin to pay our creditors 

back. If we don’t change our fiscal ways, it is likely that our children and grandchildren will be the ones who are going to be asked 

to do that paying back. 

Getting our budget back on a path to balance will require this 

Administration and Congress to make tough decisions, which we 

have been reluctant to do at least to this point in time. But before 

we can make—and really, not just difficult decisions, but really 

calling on the American people and ourselves to do some shared 

sacrificing. 

Before we can make those decisions, it is essential that the 

White House and the Congress first admit to the size and scope of 

our budget problems. Once that has been done, it will be clear that 

we can’t fix our budget problems by focusing either only on spending or only on the tax side of the ledger. Everything will have to 

be on the table, our tax policies, discretionary spending, defense 

spending as well as domestic spending, mandatory spending, and, 

I think, the budget process itself. 

Until that time, Democrats and Republicans should come together and do everything in our collective power to ensure that the 

problem that we have inherited, in some cases made, is not made 

worse. 

My friends, I think we are in a hole. Some of you remember the 

former Chancellor of the Exchequer, a guy named Dennis Healey. 

He used to talk about the theory of holes, and the theory of holes, 

as you may recall, is when you find yourself in a hole, stop digging. 

And to that end, I think we should get serious about budget enforcement. We should reinstate the pay-as-you-go rules that require 

spending increases and tax cuts to be paid for by either cutting 

spending or raising revenues. And I am confident that both sides 

of the aisle can also agree to once again put in place caps on discretionary spending. 

Mr. Chairman, thank you again for calling this hearing. I am delighted to be here sitting next to you and especially pleased to welcome our witnesses, including our old colleague here, Charlie Stenholm. 

12

1The prepared statement of Mr. Shadegg appears in the Appendix on page 48. 

Senator COBURN. Thank you, Senator Carper. 

Let me introduce our witnesses, if I may. The first gentleman, 

I have known since 1994, who has become a close friend of mine. 

I tried to get him to live with me, but he is so tight, he lives in 

his office, and so he wouldn’t share the cost of that. It is Congressman John Shadegg. He represents the Third District of Arizona. He 

got up very early in the morning to get here from Arizona to be 

here for this hearing and I want to tell him personally how much 

I appreciate him doing that. He is the author of the Enumerated 

Powers Act in the House. As a member of the Republican Study 

Committee, he currently chairs the House Republican Policy Committee. 

Next is Congressman Charlie Stenholm, Government Affairs Advisor for Olsson, Frank and Weeda, P.C. He represented the 17th 

District of Texas for 26 years in the U.S. House of Representatives. 

He was Chair of the Blue Dog Coalition and a man of immense integrity and honor that I have felt fortunate to serve with. 

Next is Dr. Roger Pilon, Vice President for Legal Affairs and 

founder and Director of the Center for Constitutional Studies at 

the Cato Institute. He founded the Center for Constitutional Studies at the Cato Institute in 1989 and he holds the B. Kenneth 

Simon Chair in Consitutional Studies. Prior to joining Cato, he 

held five senior posts in the Reagan Administration, at the Office 

of Personnel Management, the State Department, and the Justice 

Department. 

And last but not least is Dr. Daniel J. Mitchell, McKenna Senior 

Fellow in Political Economy at The Heritage Foundation. He is the 

chief expert on tax policy and economy at Heritage. He is a former 

Finance Committee economist under Senator Bob Packwood. He is 

also an expert on economies of member countries of the European 

Union. 

I welcome each of you. We will start with Congressman Shadegg. 

There is not going to be a time limit on your testimony. We have 

read your testimony. We appreciate it. Feel free to expand on that 

and then we will have some questions for you, if that is OK with 

the Ranking Member. 

Congressman Shadegg. 

TESTIMONY OF HON. JOHN SHADEGG,1 A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF ARIZONA 

Mr. SHADEGG. Thank you, Senator. I appreciate the opportunity 

to be here to discuss both the Tenth Amendment and the legislation I have in the House, the Enumerated Powers Act. 

I understand that before I arrived—I arrived as soon as I landed—you had already read parts of the story of Davy Crockett and 

his floor speech and his experience out with his constituents who 

taught him a lesson that I think has been lost on Members of Congress and, indeed, lost on the public in America, and that is a great 

story. It is incorporated in its full length in a ‘‘Dear Colleague’’ that 

I have circulated for years in the House in my efforts to secure support for the Enumerated Powers Act. 

13

I also note that you have up here some quotes from Thomas Jefferson and the language of the Tenth Amendment, all of which are 

in my testimony. I am going to summarize some of my testimony 

rather than read all of it and just hit the key points. I would like, 

of course, the entire testimony be included in the record. 

As you have noted by putting it up, the Tenth Amendment provides that the powers not delegated to the United States by the 

Constitution nor prohibited by it to the States are reserved to the 

States respectively or to the people. That is language that is, as I 

indicated, I think lost on most Americans. In other words, the National Government cannot expand its legislative authority into 

areas reserved to the States or to the people. 

As the final amendment of the Bill of Rights, the Tenth Amendment makes it clear that the Constitution established a Federal 

Government of delegated, enumerated, specific powers and thus 

created a limited government. The notion today that the Federal 

Government can do anything people want it to do is simply wrong. 

As a result of that, every Congress since the 104th, I have introduced, as you noted, the Enumerated Powers Act. It is a simple 

piece of legislation which perhaps by its simplicity scares Members 

of Congress too much. It simply says that every bill introduced by 

a Member of Congress or a Member of the Senate into the U.S. 

House or U.S. Senate would have to contain a statement citing the 

specific enumerated power granted to Congress to legislate in that 

particular area. 

Quite frankly, Article I, Section 8 sets forth those enumerated 

powers. There are 18 set forth. In trying to secure passage of the 

legislation, I am often asked by people who review it, ‘‘Well, Congressman, how would we justify,’’ and then they cite some law already in place, and my answer is typically, simply because we have 

been doing things wrong, in violation of oath of office, for that matter, for years, doesn’t mean we should go on doing them. 

A lot of people think the Tenth Amendment is a dead letter. I 

would remind this Subcommittee, and I know my colleagues here 

at the panel already know, as recently as 1996, in United States 

v. Lopez, the U.S. Supreme Court ruled that Congress did not have 

the authority to pass certain legislation. The legislation specifically 

under review at the time was the gun-free schools legislation. Although many can argue that such zones may be a good idea, what 

the Supreme Court concluded was that Congress simply lacked the 

power under the U.S. Constitution to mandate gun-free school 

zones. It determined that even the Interstate Commerce Clause did 

not give it that authority or that power. As you know, the Interstate Commerce Clause is cited quite often as a rationale for much 

of what we pass. 

In his, I think, famous book, the conscience of the conservatives, 

Senator Goldwater, explained what he felt his duties were. One of 

them was, and I cite this in my testimony, ‘‘I will not attempt to 

discover whether legislation is needed before I have first determined whether it is constitutionally permissible.’’

I think United States v. Lopez reminds us that is an ongoing obligation. Justice Kennedy concurred in the opinion and he wrote, ‘‘It 

would be mistaken and mischievous for the political branches to 

forget that the sworn obligation to preserve and protect the ConVerDate 0ct 09 2002 12:53 Sep 22, 2006 Jkt 024243 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\24443.TXT SAFFAIRS PsN: PAT
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stitution in maintaining the Federal balance, that is, respect for 

the powers reserved to the States and for the powers reserved to 

the people, is theirs, that is, is the legislative branch’s, in the first 

and primary instance.’’ That is to say, what Kennedy was saying 

to us is we have an obligation as a legislative body to fulfill our 

oaths and to honor the Constitution and to honor the Tenth 

Amendment and its prohibition. 

Simply put, when the Founding Fathers wrote our Constitution, 

they created a National Government with far-reaching powers, but 

with constitutionally limited powers, and they believed that granting specific rather than general legislative authority to the Federal 

Government would be one of the ways to control the mechanisms 

and to protect our freedom. 

I think it is worth noting that when the Constitution was written, there had been a very extensive debate about what should the 

role of the Federal Government be, and indeed, the Founding Fathers spent a lot of time writing out in detail what that role should 

be. Today, unfortunately, we have totally forgotten it. 

For the first 150 years of our history, from 1787 to 1937, the National Government was itself, the Congress was itself the bulwark 

against an expansive Federal Government legislating in all kinds 

of areas that it felt like. Unfortunately, that restraint demonstrated by those early Congresses has all but been totally abandoned in this century and in the immediately preceding century. 

Beginning with the New Deal era, modern Congresses have displayed a willingness to pass any kind of law that they feel like. 

I think it is worth nothing that virtually all of these laws, whether they are civil rights or labor or environmental, you name it, are 

always, indeed, I would agree in every single instance they are well 

intentioned. But the point is that simply from a constitutional perspective, Congress does not possess the authority to enact them. Indeed, that authority is specifically reserved for the States or perhaps to the people themselves. 

Nonetheless, we as a government have ignored the Constitution 

and expanded the authority of the Federal Government into every 

aspect of human conduct. The size and scope of our National Government has exploded over the past seven decades, as was noted 

here in the opening remarks, and many even doubt whether there 

is any life in the portion of the Constitution which restricts our 

powers. Yet the belief that the central government should have 

only limited powers remains alive in the hearts of many Americans 

who believe that people, not government programs, hold the answer to our Nation’s problems. 

I would note that I think right now, when we are confronted with 

a Federal Government out of control and we are confronted with 

spending at a level unimagined in even just recent years, just recently ago, Mr. Chairman, as when you and I were elected to the 

House, in the wake of Hurricane Katrina and at a time when Federal spending has ballooned to an unsustainable level, I think this 

is a perfect time to hold this hearing. It is a perfect time to cut 

back on some of the spending that occurs in Washington on programs wrongfully undertaken by the Federal Government, clearly 

outside the scope of our constitutional authority, and I would urge 

that we should institute a system something like that contemplated 

15

1The prepared statement of Mr. Stenholm appears in the Appendix on page 55. 

by the Enumerated Powers Act that simply forces Congress to reflect on whether or not legislation which is proposed, in fact, fits 

within our powers. 

Today, many Americans, and I think you can see this particularly in the wake of the hurricanes, not only expect the Federal 

Government to solve all their problems, it has never even occurred 

to them that the Federal Government does not have under our 

Constitution the authority to do that. I think one of the most important things this Congress could do would be to honor and abide 

by the principles embodied in the Constitution, no more, no less, 

and to respect the Tenth Amendment as it was written and to respect the division of power between the Federal Government, the 

States, and the people. 

It seems sad to me that many of our governors don’t exercise or 

demand that we exercise their authority or ours. They could be 

pointing today to the Tenth Amendment and to the Enumerated 

Powers Clause of the Constitution and saying the Federal Government can’t legislate in these areas. Instead, what they are doing is 

demanding that the Federal Government spend more and more and 

more and legislate in all those areas. 

I would conclude, Mr. Chairman, you have put up a quote from 

Thomas Jefferson. I want to conclude with one—I concluded my 

written testimony with a quote from Senator Goldwater. I will conclude my testimony here with one from James Madison, the Father 

of the Constitution. Often, the provision that is cited by those who 

want to justify Congress legislating in any area it feels like is, of 

course, the General Welfare Clause. James Madison, the Father of 

the Constitution, said, ‘‘If Congress can do whatever in their discretion can be done by money,’’ the point that was made here, ‘‘and 

will promote the general welfare, then the government is no longer 

a limited one.’’ Thomas Jefferson went on to say, ‘‘Congress does 

not possess unlimited powers to provide for the general welfare, 

but we are restrained by those specifically enumerated.’’

It seems to me that if the Framers intended the General Welfare 

Clause to have the interpretation that current Congresses put on 

it, they could have spared themselves considerable grief and 

contentiousness in that hot, humid summer in Philadelphia of 1787 

and they could simply have written, ‘‘Congress shall promote the 

general welfare.’’ They did not do that. They intended a different 

result, and the consequences, I think, are damaging our Nation 

today. 

I would be happy to answer any questions. 

Senator COBURN. Thank you, Congressman Shadegg. Congressman Stenholm. 

TESTIMONY OF HON. CHARLIE STENHOLM,1 GOVERNMENT AFFAIRS ADVISOR, OLSSON, FRANK AND WEEDA, P.C., AND 

FORMER REPRESENTATIVE IN CONGRESS FROM THE STATE 

OF TEXAS 

Mr. STENHOLM. Thank you, Mr. Chairman. Mr. Chairman and 

Senator Carper, it is indeed a pleasure for me to be here and thank 

you for affording me the opportunity to testify before you today on 

16

the subject of which you have asked the question asked by this 

hearing, how can Congress justify spending billions of taxpayer dollars on wasteful and ineffective programs when we are a Nation at 

war, recovering from the worst natural disaster in our history, already stretched thin by record non-military spending? 

It virtually answers itself. We can’t. The fact that such a question even has to be asked at a Congressional hearing underscores 

just how far we have strayed from the path of fiscal responsibility. 

It should be equally obvious that we can’t keep cutting our revenues as we face higher expenses for war and disasters. As a longtime advocate of pay-as-you-go budgeting, it is heartening to hear 

talk again about offsetting the costs of legislation to prevent the 

deficit from increasing. Unfortunately, the leadership in Congress 

didn’t rediscover the common sense principle of pay-as-you-go until 

after enacting legislation that added several trillion dollars to our 

Nation’s debt. Even now, the leadership continues to apply the 

principle selectively. 

I applaud the efforts that many of you have made to find offsets 

for the cost of disaster relief in the Gulf Coast. However, to me, it 

is far more important that Congress offset the cost of legislation 

that will have a permanent impact on the long-term budget outlook. Focusing on offsetting the one-time temporary cost of disaster 

relief while ignoring the cost of legislation that will permanently 

increase the deficit by a much greater amount over the long term 

makes no sense. 

I would like to believe that the leadership in Congress has undergone a conversion on the road to Damascus in fiscal policy, but 

the refusal to reconsider legislation enacted over the last several 

years which has led to our current deficit situation and the insistence on moving forward with tax cuts and other legislation that 

would increase the deficit casts doubt on the seriousness of their 

newfound concern for the deficit. 

It is true, when we start talking about the deficit, it is true that 

our Nation has faced unexpected emergencies that have contributed to the deficit, but that is not an excuse for running deficits. 

Many of us warned that the anticipated budget surpluses just a 

few years ago were only projections and that it was dangerous to 

make commitments using all of the projected surpluses without 

leaving any room for error. We warned that if the projections didn’t 

turn out exactly as hoped, we would return to deficits. We should 

have set aside some of the projected surplus as a cushion to prepare for unanticipated costs. 

Defenders of our current economic and fiscal policies have argued 

that deficits don’t matter. You notice that I said ‘‘we’’ because I was 

part of those votes up until December of last year. The reality is, 

though, that deficits do matter. It has been mind-boggling to me to 

hear some of my conservative friends, that when the shoe was on 

the other foot, we were talking about how bad the deficits were, to 

suddenly now say deficits don’t matter anymore. The reality to me 

is that deficits do matter, both for our economic security today as 

well as the future we leave for our children and grandchildren. 

Our increased reliance on foreign capital to finance our deficits 

places our economic security at the mercy of global bankers and 

foreign governments. Large deficits financed by borrowing from forVerDate 0ct 09 2002 12:53 Sep 22, 2006 Jkt 024243 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\24443.TXT SAFFAIRS PsN: PAT
17

eign investors are also a major factor contributing to the trade deficits which we are now exporting jobs at a very rapid rate. 

We need to keep the value of the dollar high in order to attract 

the foreign capital we need to finance our debt. If the value of the 

dollar declines, U.S. bonds will be less valuable to foreign investors, 

but the strong dollar we need to help Treasury finance our budget 

deficit hurts our business by making U.S. exports more expensive. 

Round and round we go. 

Deficits do matter. Our current borrow-and-spend policies, to me, 

are worse than the tax-and-spend policies of the older days. When 

you tax and spend, you are politically accountable, and I love the 

sign up here talking about accountability. When you vote to tax 

people to do, as my colleague Mr. Shadegg says here, when you 

vote to do things that some decree as being unconstitutional, there 

is accountability and you pay for that at the ballot box, or at least 

you should. But when you borrow and spend, there is no accountability. 

My three grandchildren, my three grandsons, don’t have a vote 

on what I did when I was in the Congress or what you will do this 

year in the Congress and that is where the accountability is. Our 

grandchildren do not have a vote. That is why it is so easy for us 

to say today we can fight two wars, fund homeland security, fight 

the war on terrorism, rebuild the Gulf Coast, and keep cutting our 

taxes, because we are going to send the bill to our grandchildren. 

It is neither fiscally responsible nor politically viable to make 

cutbacks in some areas of the budget in the name of deficit reduction while exempting other areas. If we really want to get serious, 

everything has to be on the table, everything. Otherwise, you will 

never get there. It is neither fiscally responsible nor politically viable to make cutbacks in some areas while exempting others. It will 

take everyone pulling to get the wagon out of the ditch. We won’t 

be able to get it out if some people are riding. 

The first step in bringing the deficit under control is to stop 

digging the hole deeper. I used to give that quote. I am glad to 

know who should have the credit for that. I used to say it was either Confucius or Garfield, but——

Senator CARPER. Congressman, I used to attribute it to you. I 

found out it was Dennis Healey. 

Mr. STENHOLM. Well, that is dangerous around here. 

Rhetoric about controlling the deficit by offsetting increased 

spending doesn’t have much credibility when Congress continues to 

go forward with plans to add additional tax cuts. 

Now, there will be those that argue that—and we have now enacted three tax cuts based on the theory that tax cuts will stimulate the economy, and some of them do, no question about that, and 

pay for themselves as a result of economic growth. There is a big 

question about that. As one who voted for the Reagan tax cuts in 

1981, I also remember the tax increases of 1982, 1983, 1984, 1985, 

and 1986 in which we adjusted, in a bipartisan way, we adjusted 

for the economy to avoid building the deficits to alarming heights. 

Today, we don’t worry about $300 billion, $400 billion deficits. 

Each time, advocates of the tax cuts dismissed warnings about 

the impact on the deficit, yet the deficit continued to grow. Although some advocates of tax cuts have claimed that recent reports 

18

showing higher than expected revenue collection last year is evidence that the fiscal policies of the last 5 years are working, the 

reality is that the recent increase in revenues just partially begin 

to restore the decline in revenues over the last several years. 

There are many reasons that actual revenues have been much 

lower than Congress and the Administration projected when the 

tax cuts were enacted, but clearly, those tax cuts have not paid for 

themselves and have been granted with borrowed money. 

So my first point is, you have got to put everything on the table. 

Any serious effort to restore fiscal deficits should begin with reinstating the pay-as-you-go budget, already mentioned by Mr. Carper 

and by you, Mr. Chairman. It is a darn good idea. It is very simple. 

If you are going to spend for anything, you have got to find someplace to cut. But why we have selectively stopped doing what we 

did successfully in 1990 and 1997 in which everything was on the 

table, including if you are going to cut taxes, you have got to cut 

spending first or find other revenues to replace that so the deficit 

does not grow large. 

For some reason, and I would say, with all due respect to my republican friends, that if you are sincere in what you say about controlling spending, you should not have a problem with reinstating 

pay-as-you-go for taxes as well as spending because it would force 

Congress to actually cut spending to accompany the tax cuts instead of just promising to cut spending in the future. That has 

been the weakness that we have gotten into. 

One small step that would help restore a small measure of fiscal 

discipline is enactment of expedited recision. Senator Carper, you 

and I worked on that. Dr. Coburn, you have been the champion 

lately of that same process. It makes good sense. We went through 

this with line item veto and there were a lot of folks that were saying we ought to give the President line item veto. Some of us had 

a little problem with that because of the Constitution, of granting 

an individual, in this case the President, something that was not 

enumerated in the Constitution. And sure enough, we found out it 

could not be done. The Supreme Court ruled against it. But modified line item veto makes good sense. 

Dr. Coburn, last week when you attempted to extract some 

spending from the budget, it would sure be nice if the President of 

the United States could go in and either say, those spending items 

that you were trying to extract should be in the budget because 

they are necessary spending or they should not, and as I have always said, you could take my pork, that which I put into the budget, and President, you can veto it. All I ask is a chance to have 50 

percent plus one of my colleagues to agree with me or with you. 

Therefore, we get into the problem that Mr. Shadegg is talking 

about, what is enumerated in the Constitution and what is not. If 

my programs are not enumerated, i.e., by 50 percent plus one—a 

little slightly different take than what Mr. Shadegg is talking 

about—I am perfectly willing. I think it makes good sense. Expedited recision would bring greater accountability, all of those things 

up there, and I hope the Senate, you in a bipartisan way, will look 

at implementing a modified recision order. 

Another tool that Congress should consider to eliminate low-priority spending is sunset legislation to provide for regular review of 

19

the efficacy of various programs. Here, if our committees, and I will 

speak for the Agriculture Committee in the House, we need to 

spend more time in oversight. One of the few members on the 

House side that has done anything along this line is Joe Barton of 

Texas in saying that many of the programs in the energy and commerce and the health area, we passed them and nothing ever happens because we don’t look at it. We ought to spend a little more 

time in that and sunsetting, and one good way to do it is to have 

every program stop every 10 years unless it is reauthorized. That 

is not a bad idea. 

Moving on real quickly, I think we ought to—or recommend to 

you, I should say, to seriously look at changing the way the CPI 

is calculated. Today, if we can debate, and we do debate various 

credibility of any government program, but having an automatic 

cost-of-living adjustment that is not accurate makes limited 

amounts of sense, and there are several ideas out there that can 

be extremely helpful in making sure that the CPI is calculated, different views, different ideas, but I recommend you take a look at 

it. 

I would hope that this would be the year that Congress and the 

President will take a look at, Mr. Chairman, what you mentioned 

in your opening remarks, and that is the unfunded liabilities of the 

many programs—Social Security, Medicare, Medicaid. But it wasn’t 

to be. We did not have the leadership or the followership in a bipartisan way to deal with a program that must be dealt with, no 

question about it. 

When I first started being concerned about that, I didn’t have 

any grandchildren and 2011 was a long time away. That is when 

the baby boomers are going to begin to reach age 65. Well, 2011 

is not very long away and every day we wait to fix Social Security, 

and then everybody will chuckle and say that was the easy one. 

Medicare is going to be the tough one, Medicaid, in this. But we 

postponed that for another year. 

In conclusion, Mr. Chairman, I have attached an op-ed chart 

published in the New York Times by Maya MacGuineas. I also 

have the privilege of now serving on the Board of the Committee 

for Responsible Budget. You mentioned Pete Peterson’s book. I 

have read it twice. I enjoy serving with him and many of the views 

that we have, have come from him. I also serve on the Board of 

the Concord Coalition, which is Pete Peterson—I got mixed up 

there, but some good ideas. The Center for Budget and Policy Priorities, a little more liberal group, but when you put all three of 

those, and I recommend that you or your staffs take a look at how 

much agreement we have on how you could truly do something 

about the budget deficit. 

Just today, and as I said, I am speaking for myself, but a press 

release issued by the Committee for Responsible Budget urges Congress to proceed with the spending cuts while holding off on the tax 

cuts. I join in that recommendation. We only disagree with some 

of the individual items suggested, but if we are ever going to get 

a solution, we are going to have to find a way to work together. 

You can have the greatest idea since sliced bread, but as a member 

of the House, unless I could find 217 to agree with me and then 

20

1The prepared statement of Mr. Pilon appears in the Appendix on page 63. 

51 Senators, it was never going to happen or you were never going 

to keep it from happening. 

One of the happiest days of my life was seeing the balanced 

budget constitutional amendment pass in the House of Representatives. One of the saddest was watching it be defeated in this body 

by one vote. If we had passed that constitutional restraint, we 

would not have near the severe budget problems that we have 

today. Thank you, Mr. Chairman. 

Senator COBURN. Thank you, Congressman Stenholm. Dr. Pilon. 

TESTIMONY OF ROGER PILON,1 VICE PRESIDENT FOR LEGAL 

AFFAIRS, B. KENNETH SIMON CHAIR IN CONSTITUTIONAL 

STUDIES, AND DIRECTOR, CENTER FOR CONSTITUTIONAL 

STUDIES, CATO INSTITUTE 

Mr. PILON. Thank you very much, Mr. Chairman. Thank you for 

inviting me here to testify, and thank you especially for calling 

these hearings on a subject that is too rarely considered in this 

body as well as the body across the way, namely, what is the constitutional authority for so much of what Congress is doing. I am 

here to take a very serious position, namely that most of what this 

Congress does is beyond the authority of the Congress to do because it is done without constitutional authority. 

A decade ago, I had the pleasure of working with Congressman 

Shadegg over in the radical 104th Congress, his first year in Congress, with the Constitutional Caucus that was created at that 

time. It was a heady time when we thought we might be able to 

do something about this. Unfortunately, it did not come to pass, 

but I will say a little more about that in a few minutes. 

I appreciate the fact that you have lifted the normal time restraint. However, I want to assure you I will not read the 17 pages 

of single-spaced testimony that I have prepared. I would ask, however, that it be included in the record. 

Senator COBURN. Thank you, and without objection, it will. All 

testimony will be included in the record. 

Mr. PILON. All right. Good. Now, the main point that I drew out 

of that testimony was the point about constitutional legitimacy and 

that is what I want to focus upon primarily in my remarks. Congressman Shadegg has covered a good deal of what I included in 

my testimony. I will just fill in interstitially some of the points surrounding that. 

I wanted to focus on the Constitution’s theory of legitimacy and 

then raise three questions that arise from the fact that so much of 

what Congress does today is done without constitutional authority, 

namely how did we get to this state of affairs; second, what are the 

implications of it; and third, what is to be done about it? 

This issue of legitimacy is, unfortunately, too little understood 

not only in this body, but in the country at large, although I think, 

Mr. Chairman, that you are absolutely right that out there in the 

country, there are a lot of people who have at least an intuitive understanding that Congress is acting way beyond its constitutional 

authority. 

21

After all, Madison said in Federalist 45, when he was trying to 

assure a Nation that was concerned that the new Constitution the 

Philadelphia Convention had drafted was giving too much power to 

the National Government that the powers of the Federal Government were to be few and defined. I don’t think anyone in this room 

thinks that the powers of the Federal Government today are few 

and defined, and so the question is how did we get from there to 

here? 

The theory of legitimacy starts with the Preamble. We, the people, for the purposes listed, do ordain and establish this Constitution. Therefore, all power starts with the people. The theory of the 

Constitution is really quite simple. They give the government certain powers. They retain the rest themselves, either giving them to 

the State or retaining them, never having given them to either 

level of government. 

The first sentence of Article I says, all legislative power herein 

granted shall be vested in the Congress. By implication, not all 

power was herein granted. Look at Article I, Section 8, and you will 

find 18 powers that were granted to Congress: The power to tax, 

the first power; the power to borrow, the second power; the power 

to regulate international and interstate commerce, the third power; 

and so on, culminating with the necessary and proper clause which 

provides Congress with the means to carry out those other powers. 

Now, that theory of legitimacy, namely that the government has 

only those powers we have given it, is one that we lived under pretty much for 150 years, as Congressman Shadegg said, and we see 

examples of it during that period. You drew upon the little volume 

by Charles Warren, Congress as Santa Claus, a title that captures 

volumes about what is going on today. And in there, you find a 

storehouse of examples of Congress, the executive, and the courts 

resisting the inevitable impulse towards ever-larger government. 

Remember, Jefferson said it is the tendency of government to 

grow and liberty to yield, and we have seen that right from the beginning. Hamilton’s report on manufacturers in 1791 was a national industrial policy that the Congress fortunately shelved. In 

1794, Madison was based with a bill for the appropriation of 

$15,000 for French refugees who had fled from an insurrection in 

San Domingo to Baltimore and Philadelphia. He rose on the floor 

of the House to say, I cannot undertake to lay my finger on that 

passage of the Constitution that authorizes us to expend the money 

of the taxpayers on this humanitarian activity. Two years later, his 

colleague, Giles from Virginia, faced with a bill appropriating funds 

for people suffering from a fire in Savannah said our duty is to uphold the Constitution and our oath not to engage in these eleemosynary activities. 

And so it went largely through the 19th Century. Oh, there were 

efforts, to be sure, but they were resisted. In fact, what we see as 

late as 1887, 100 years after the Constitution was written, was a 

bill appropriating for the relief of farmers in Texas, excuse me, 

Congressman Stenholm, for the relief of farmers there suffering 

from a drought, to buy them seeds. It did make its way out of Congress but President Cleveland vetoed it on the ground that I can 

find no authorization for this expenditure in the Constitution. 

22

And so what we have here is a pattern. They were rejecting 

these programs and these proposals and these bills not on budgetary grounds, but on constitutional grounds, on the ground that 

we have no authority. And so the pattern we see during these first 

years, largely for 100 or more years, was this: Bills rarely got out 

of Congress, and when they did, Presidents would veto them, and 

when they didn’t, the court would stand to thwart these efforts to 

expand government. And so the pattern largely held, the system of 

checks and balances largely held because Congress, the President, 

and the courts took the Constitution seriously. They asked, do we 

have authority under the Constitution to engage in this particular 

action? 

Contrast that with the Gun–Free School Zones Act that Congressman Shadegg raised a few minutes ago. That was passed in 

1990 by Congress without Congress so much as even citing its authority under the Constitution for the Act. During oral argument 

in the Supreme Court, the Solicitor General had to bootstrap the 

authority into his argument by pointing to the Commerce Clause. 

When that came up from the Fifth Circuit in Texas, the Fifth Circuit had found it constitutional because exceeding Congress’ authority. For the first time in nearly 60 years, this had been said 

by a court, referencing the Commerce Clause. 

When it did, we at the Cato Institute commissioned a paper by 

a professor at the University of Texas which we entitled, ‘‘Kids, 

Guns, and the Commerce Clause: Is the Court Ready for Constitutional Government?’’ We thought that title might attract their attention. Well, the official wisdom in Washington said that would be 

reversed nine-to-nothing. The conventional wisdom was set back on 

its heels when the Court, five-to-four, upheld the Fifth Circuit and 

found the statute unconstitutional. 

And so what did Congress do? It repassed the statute, citing the 

Commerce Clause this time and including a jurisdictional element 

in the hope that it might be found constitutional on the second goaround. So much for the respect for the Constitution that the Congress is showing so often today. 

Now, when did all of this change? It changed, as Congressman 

Shadegg said, during the New Deal. But the precursor of the New 

Deal was the Progressive Era and it is important to focus upon 

that because it is at that time that the climate of ideas fundamentally changed. Whereas the founding generation thought of government as a necessary evil, the progressives thought of government 

as an engine of good, an instrument through which to solve all 

manner of social and economic problems. Borrowing from German 

schools of good government, from British utilitarianism, which had 

replaced the natural rights theory on which the Constitution rested, they simply wanted to have program after program addressing 

the problems of society. It was to be better living through bigger 

government, if I may paraphrase the DuPont slogan from a few 

years ago. 

Well, of course, the pesky Constitutions to dethwart that effort 

and the willingness of the courts to enforce it up until the New 

Deal and the shift in focus by the progressives from the State level 

to the Federal level, at which time one program after another from 

Roosevelt was found to be unconstitutional. 

23

After the landslide 1936 election, Roosevelt unveiled his notorious Court-packing scheme, his threat to pack the Court with six 

additional members. Not even Congress would go along with that. 

Nevertheless, there was the famous switch in time that saved nine. 

The Court got the message and it began rewriting the Constitution 

without benefit of constitutional amendment and it did it in two 

main steps. 

In 1937, it eviscerated the Doctrine of Enumerated Powers, the 

very centerpiece of the Constitution, the very foundation of legitimacy. And in 1938, it bifurcated the Bill of Rights and gave us a 

bifurcated theory of judicial review. 

In the 1937 effort to eviscerate the Doctrine of Enumerated Powers, it took two clauses, the General Welfare Clause, so-called, and 

the Commerce Clause, turned them on their head, turned them 

into instruments for expanding government power. They effectively 

unleashed the modern redistributive and regulatory State. 

And in 1938, because the Bill of Rights was still standing, you 

could invoke your rights against this overweening power, they bifurcated the Bill of Rights to distinguish fundamental from nonfundamental rights, developed two levels of judicial review, gave us 

the incredibly convoluted constitutional jurisprudence that we have 

today which makes the Constitution all but inscrutable to the layman. 

Now, in the 1937 evisceration of the Doctrine of Enumerated 

Powers, I want to point to the General Welfare Clause, so-called, 

because that is primarily at issue before these hearings. The General Welfare Clause, there is no such clause in the Constitution. It 

is, in fact, a phrase in the taxing power. The Congress has, in the 

first of its enumerated powers, the power to tax. The second, the 

power to borrow. 

The idea that there is a General Welfare Clause comes from the 

debate between Hamilton and Madison early on arising out of the 

report on manufacturers that Hamilton gave to Congress in 1791. 

In 1936, in the Butler case, the Court entertained that debate, 

came down on Hamilton’s side in dicta. In 1937, in the Social Security case, they elevated the dicta to the holding of the case. And 

so that is where we have this so-called General Welfare Clause to 

wrestle with today. 

Well, what happened after that? Of course, the floodgates were 

open and the modern welfare state poured through and——

Senator COBURN. Can I get you to go to what do we do about it? 

Mr. PILON. Absolutely, and so what we have got today is something like the Labor, HHS, and Education appropriations bill, 

which I understand is before the Senate today, and again, let me 

say there is not only no authority for this kind of spending, but 

there is no authority for even these agencies within the Constitution. 

And so the implications of all of this are the loss of legitimacy, 

legal chaos that flows from this, disrespect for the law, the lack of 

discipline, and I mean discipline with respect to the Congress itself 

and discipline with respect to the people, because, of course, if Congress is going to bail the people out every time they get in trouble, 

you are going to get what you pay for. I give you the example of 

24

1The prepared statement of Mr. Mitchell appears in the Appendix on page 80. 

flood insurance as a perfect example of that. And finally, the economic decline that necessarily follows the expansion of government. 

And so what is to be done about this? Well, this isn’t going to 

be changed overnight. We didn’t get into this problem overnight. 

We are not going to end it overnight. Moreover, too many people 

have come to rely on all of these government programs, so it has 

to be done slowly, but we have to begin, and the place to begin is 

with a change in the climate of ideas. Just as the progressives 

brought about this through a mining of the world of ideas through 

the early part of the 20th Century, so those of us who want to roll 

back modern leviathan are going to have to work in the climate of 

ideas to change it, and one of the best places to start is right here 

in Congress. 

As I said, a decade ago, Congressman Shadegg, Congressman 

Brownback when he was in the House, Bob Barr, Richard Pombo, 

and others, there were 100 members altogether in the Constitutional Caucus which sought to revive debate in the House on the 

meaning and limits imposed by the Constitution. And so this is the 

first step, to revive constitutional debate by seizing every opportunity, when a bill is introduced, when reauthorization is before 

the House, to ask, where is the constitutional authority for this? 

Second, enact nothing without citing the authority for it in the 

Constitution and making a clear argument for that. 

Third, move toward restoring power back to the States and to the 

people. 

And finally, don’t confirm any nominee to the courts who does 

not understand the Constitution creates a government of delegated, 

enumerated, and thus limited powers. Thank you, Mr. Chairman. 

Senator COBURN. Thank you. Dr. Mitchell. 

TESTIMONY OF DANIEL J. MITCHELL,1 McKENNA SENIOR FELLOW IN POLITICAL ECONOMY, THE HERITAGE FOUNDATION 

Mr. MITCHELL. Thank you, Mr. Chairman. With my testimony already in the record, why don’t I just touch on some of the highlights. 

Unlike Dr. Pilon, who has the background to discuss the legal 

issues, I am an economist, so I want to focus more on just the results, the consequences of government spending, and first, let me 

give a caveat. There are many different policies of government that 

affect economic performance—trade policy, regulatory policy, monetary policy, and tax policy. 

But if we try to isolate government spending and look at the consequences of government spending, the No. 1 thing that one would 

do is to compare costs and benefits, and the No. 1 thing to do when 

you are looking at costs is to recognize that you can’t spend the 

same dollar twice. Capital and labor can only be used one time, for 

one purpose. And so any time government does something, any 

time it is spending money, any time that money is then being spent 

in a way that is utilizing capital and labor in our economy, those 

resources, by definition, are no longer available for other uses. And 

since we assume that there is some productive capacity in the private sector to utilize resources efficiently, the challenge for policy 

25

makers when trying to estimate the overall economic effect of government spending is to look at what benefits that government 

spending will generate, or perhaps what costs that government 

spending will impose. 

Economists in the public finance literature talk about public 

goods. In other words, these are certain goods that have a positive 

net effect on the economy. We all would recognize or at least appreciate the concept that if you had no government at all and some 

sort of anarchial system, that you probably wouldn’t have very 

much economic performance. There would be no court system, no 

rule of law, no police protection, no way for a market economy to 

function very well in that kind of system. So when you have the 

public good of police protection, rule of law being put into place, 

you are actually facilitating private sector economic activity. 

It doesn’t mean that financing those things is free. It has a cost. 

But it means that the benefits exceed the cost, and if you look at 

the back of my testimony, if you have it in front of you, the first 

chart is something called the Rahn Curve and this is named after 

a former chief economist for the U.S. Chamber of Commerce who 

wrote about this back, I think, in the 1980s, he first started discussing this. He makes a point that initial levels of government 

spending, assuming that they are financing public goods, can have 

a very pro-growth effect on the economy precisely because they are 

facilitating the effective operations of a market economy. 

But then at some level, when government is finished financing 

public goods and it starts financing what we traditionally would 

think of and what Roger described as the modern redistributive 

welfare state, in that case, you have the cost of raising the revenue, 

you are displacing private sector economic activity by having government spending money, but you are not getting a commensurate 

benefit. In other words, you are not financing public goods, you are 

simply giving money to people for satisfying a certain criteria. 

Now, it may be, as has been touched on already, well intentioned, but that doesn’t change the fact that there is a real economic consequence. I actually did a review of the academic literature for a paper that was published by The Heritage Foundation 

on the economic consequences of government spending and it turns 

out there are several different categories. I won’t go through all 

them here, but suffice it to say that you have two macro economic 

categories, the displacement effect—government spends a dollar, it 

is no longer available, and then the financing effect, and that refers 

to whether you tax a dollar out of the productive sector of the economy or whether you borrow it out of the productive sector of the 

economy. Those will have specific sectoral effects, the different financing mechanisms. You can even apply that to, if we are a Banana Republic, printing money to finance government spending. 

That would be a third way, but presumably, we don’t do that anymore. 

All those different ways of financing government spending impose different negative effects. And then you have the various 

micro economic effects, and I walk through those in my testimony. 

It is probably not terribly important to focus on those here. 

Instead, let me just take a minute to discuss the actual real 

world economic effect of these things. I found your chart up there 

26

very interesting, comparing the burden of government in the 

United States compared to the original 15 nations of the European 

Union. If you look at the actual data for economic performance, and 

again, keep in mind the caveat there are regulatory reasons, tax 

reasons, trade reasons that all influence economic performance, 

and so comparisons between countries are always a little bit tricky. 

But when you have dramatic numbers, such as the fact that per 

capita economic output in the United States is 40 percent higher 

than the average of the European Union 15 nations, that should 

make us pause and consider, what does that mean? 

When you consider that traditional economic theory suggests 

that if one Nation is poor and another nation is rich, they should 

begin to converge over time as competitive forces bid away the cost 

advantages of the lower-income country and raises that country’s 

income. But what has happened is the United States started out 

richer than Europe and our gap, our lead over Europe has increased in the last 20 years completely contrary to the theory. Why 

is it that when we are starting out richer than Europe, we are still 

growing faster than them? Presumably, economic policy plays some 

role, and presumably, the size of government is one of those economic policies. 

If you look at more specific government data, such as unemployment rates, the unemployment rate in the United States is barely 

half of that of the average in E.U. countries, and some of the most 

notable welfare States in Europe, like Germany and France, have 

unemployment rates more than twice the U.S. level. 

And perhaps even more shocking is if you look at the duration 

of unemployment, 48 percent of the unemployed in Europe have 

been unemployed for more than a year. In the United States, that 

number is less than 10 percent. Now again, labor law restrictions 

and rigidities in that market, tax policies, including extraordinarily 

high payroll tax rates, other factors are involved. We don’t want to 

just focus on government spending. 

But in my testimony, from the survey of the academy literature, 

I walked through some of the key findings, findings not only from 

academic journals, but findings even from some of the multilateral 

institutions that we don’t normally think of as pro-market—the 

World Bank, the IMF, the OECD, the European Central Bank—in 

addition to various academic journals out there, there has been a 

very clear trend in the academic literature in the last 20 years 

showing that as government gets bigger, you wind up having a 

weaker economic performance. 

In other words, going back to the theoretical considerations I outlined in the beginning, every time you make government bigger, 

you not only have those displacement costs, you not only have 

those financing costs, but then you also have the various and sundry other costs that are outlined in my testimony. 

Let me just touch on a few examples of countries that have 

turned their policies around to conclude my testimony. Oftentimes, 

when talking about these issues, policy makers will say, but if we 

dramatically reduce government spending, isn’t that going to cause 

an economic slowdown? Isn’t that going to be somehow withdrawing money from the economy? And you walk through, of 

course, the theory about, no, you are actually freeing up resources 

27

for more productive use, but I find it is actually even more effective 

to talk about real world examples. 

New Zealand, many years ago, had government spending at almost 50 percent of GDP. In other words, they were at the level that 

many European countries are at right now. New Zealand’s economy 

was suffering considerably. Under, actually originally beginning 

under a Labor Party government, New Zealand dramatically 

turned around its economic policy, including very significant reductions in government spending. Government spending has now fallen to about 35 percent of GDP, which is pretty close to the U.S. 

level when you include State and local government in the United 

States, and what has happened is New Zealand has prospered ever 

since then. They are now among the top ten competitive economies 

in the world, according to a whole series of different rankings. 

Their GDP has increased dramatically and they have clearly 

turned their economy around. 

Ireland is another example. Ireland had government spending of 

52 percent of GDP at the peak. Their economy was in the doldrums. Their biggest export was their people. Their unemployment 

rate peaked at 17 percent. Well, in addition to other policies—

again, there are many factors that go into economic performance, 

but one of the things that Ireland did was dramatically reduce government spending. Indeed, over a period of 1986 to 1988, government spending was reduced by 20 percent. And all told, over the 

period from the mid–1980s until today, government spending has 

gone from 52 percent of GDP down to about 33 percent of GDP. 

So, in other words, they are one of the European countries that 

has actually moved much more in our direction, and as a result, 

the economic consequences for Ireland have been stupendous. Their 

unemployment rate has fallen from 17 percent to 5 percent and the 

per capita GDP has expanded so much so that they have gone from 

being one of the poorest countries in Europe to now being the second richest Nation in the European Union, behind only Luxembourg, which is a special case because it is such a good tax haven 

for all the other over-taxed people of Europe. 

And then, finally, an example from the Eastern Bloc. The former 

Soviet empire broke up and we now have various nations that are 

doing a lot of really good things with economic reform. Slovakia is 

a great example. According to OECD data, in just a period of 7 

years, they have brought government spending as a share of GDP 

down from more than 60 percent of GDP to only about 43 percent 

of GDP, still very high, but a dramatic reduction in an extraordinarily short period of time. 

Now, the old Keynesian theory of government spending being 

good for the economy would have suggested that would have led to 

economic turmoil. Instead, Slovakia is one of the new tigers of 

Eastern Europe and they have more foreign direct investment per 

capita than any other Nation on earth. 

And so again, the actual empirical evidence, the academic evidence, the theoretical evidence all suggests that when government 

expands beyond the basic financing of public goods—and by the 

way, it is the public goods that, by and large, are in the enumerated powers section of the Constitution—when government expands 

beyond that level, there are real economic costs. 

28

Frederick Bastiat, the great French economist, used to talk about 

or right about the seen versus the unseen, and he was usually talking about why protectionism is bad. We all see the beneficiary of 

protectionism, but we don’t realize, we don’t see quite as easily all 

the people who are losing jobs and losing income because of barriers to trade. 

The same analysis applies to government spending. Many people 

think government spending is good because we see the person getting the check from the government and we think, ahh, that person 

is going to go out and spend the money in the community and that 

is going to somehow create jobs. What we don’t see is as those resources are displaced from the productive sector of the economy 

and they are used less efficiently through the political process, 

there are very real costs, just like there are very real costs to protectionist policies. 

Economic growth is all about using resources in the most efficient manner. Having government take those resources, control 

those resources, and allocate those resources, in most cases, is 

going to impose more costs than benefits. Thank you very much. 

Senator COBURN. Thank you. Let me just ask a question. Did any 

of these countries—New Zealand, Ireland, or Slovakia—did they 

develop the political will within, or were they faced with an economic crisis that forced that change? 

Mr. MITCHELL. In the case of New Zealand, I think it was an economic crisis from without more than anything else. As a geographically isolated country that obviously had to rely a lot on trade, they 

were losing foreign investment. They were losing—their own domestic savings was going abroad. And this was actually under the 

so-called right-wing National Government that these policies really 

came to a head. That party got voted out of office. The new Labor 

Party that came in decided that they had no choice but to try to 

engage in these reforms and they liberalized their economy across 

the board, not only in terms of spending, but again, I don’t want 

to pretend that spending is the only lever. 

In the case of Slovakia, and we have seen this with many other 

countries to come out of the former Soviet empire, having had their 

economies decimated by decades of communist rule, they obviously 

were very ripe for dramatic and sweeping economic reform. 

Ireland is a case where, ironically, it seems to have been domestic home grown, where the various parties just came together, and 

actually, working with business and labor unions, decided if we 

want to grow and prosper, we better figure out a competitive strategy. As part of being in the European Union, there was a lot of discussion, well, if we can make ourselves the base for multinationals 

to build their factories to serve the European Union market, that 

is going to be very successful, and they decided that if they wanted 

to afford the dramatic tax reductions that they engaged in, they 

had better also get control of the public spending side of the equation, and so they did the two things in conjunction. 

But again, that wasn’t really because outside forces were compelling them. There was no IMF or World Bank, like you find with 

less developed countries, ordering them to make the changes. It 

was more just that the domestic political forces thought that if we 

don’t make the changes, we are going to continue to suffer migraVerDate 0ct 09 2002 12:53 Sep 22, 2006 Jkt 024243 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 C:\DOCS\24443.TXT SAFFAIRS PsN: PAT
29

tion of our best and brightest young people out of the country. We 

are going to continue to be the sick man of Europe. We are going 

to continue to have very low living standards. 

Senator COBURN. Do you foresee a potential crisis for this country in terms of the deficit spending, one; international debt, two; 

and three, international trade deficit, that you could foresee a period of time where there would be economic situations where the 

international financial community would force those type of 

changes on this country? 

Mr. MITCHELL. Well, I am not one who goes to sleep or wakes 

up worrying about the deficit. I tend to worry more about just the 

size of government and how it is financed tends to be a secondary 

concern. As I mentioned in my testimony, both methods of financing government have their own specific negative sectoral effects on 

the economy, but having said that, we have a very bleak future in 

terms of the unfunded liabilities of not only our Social Security system, but Medicare, the new prescription drug entitlement, the combination of all these things. You are looking at unfunded liabilities 

that are several times the size of the national debt. 

Now, again, I am not one that spends a lot of time worrying 

about the national debt. In present value terms, paying it off today 

is the same as just rolling it over. That is what interest rates do. 

They make everything a wash in terms of present value. But when 

we are looking at projected unfunded liabilities of tens of trillions 

of dollars, and what that really translates into is the fact that our 

government spending is going to go up to the level that you find 

in France and Germany, and whether we decide we are going to 

finance that government spending by raising taxes or whether we 

just finance that government spending by issuing debt, assuming 

people will continue to purchase our debt, the real economic damage is the fact that we are going to have half of our resources in 

our economy being allocated according to political considerations, 

and I suspect that is where we are going to do the most damage. 

Regarding whether international investors are going to finance 

our debt, that is a little bit of a tricky question because if you are 

an international investor purchasing U.S. Government debt—

whether you are a foreign life insurance company, a foreign mutual 

fund, a foreign central bank—we have various sources that are 

purchasing our government debt, it is obviously not in your interest 

as a holder of U.S. Government debt to see the value of that debt 

go down. So I don’t think that a foreign central bank or a foreign 

mutual fund would ever decide that they are going to cause a run 

on U.S. securities because that would be very much against their 

interest. They want their investment to grow, to increase, to remain at a high value. 

But nonetheless, if we do allow our national debt to grow from, 

what, around 35 percent of GDP today, if we allow it to go to 50 

percent of GDP, 70 percent of GDP, at some point, investors are 

going to get a little queasy about that. Now, where that point is 

is hard to say. In a remarkably short period of time, Japan in just 

the last 15 years has gone from government debt of about 50 percent of GDP to government debt of 120 percent of GDP, but investors are still buying Japanese bonds. The same thing with Italy. 

Their government debt is well over 100 percent of GDP. It makes 

30

ours look like just pennies, and yet people are still buying Italian 

government debt. 

So where that point of crisis occurs, it is hard to say. Where we 

have seen crises occur in governments tends to be in less developed 

countries where there is monetization of the debt. That, overnight, 

will cause the confidence in a country to collapse. 

Senator COBURN. Congressman Shadegg, the Enumerated Powers Act is now part of the process, is it not, of the House? How does 

that work? How did that come about? And do you have any recommendations for us in the Senate? 

Mr. SHADEGG. It came about as a result of, I think, the House’s 

decision back even in the heady days of the 104th Congress not to 

pass a statutory requirement. So instead, it embodied the concept 

of the Enumerated Powers Act into a House rule. Quite frankly, in 

my printed testimony, there is a list of bills that were introduced 

last year where the rule would require citation of the constitutional 

authority and yet no citation was ever made. I think it is, quite 

frankly, a feeble attempt to deal with the issue because the rules 

are known and paid attention to by very few Members of Congress 

and they are waived routinely by the Rules Committee and tend 

not to have a very binding or substantial effect on the debate or 

what goes on. 

Quite frankly, I think it is very important in this discussion to 

recognize that this isn’t all green eye shade stuff. My colleague, Mr. 

Stenholm, talked a lot about the green eye shade consequences and 

the debate of, well, are tax cuts a bad idea, but spending, we have 

to hold in control. If we raise taxes and check spending, are we getting somewhere? 

I am very pleased to note, as Dan Mitchell points out, that there 

are economic consequences of an unrestrained government, but 

there is a more fundamental issue at play here. 

It is interesting—again, I point to my colleague, Mr. Stenholm. 

I, like he, was very pleased the day the House passed the Balanced 

Budget Amendment saying we should require a balanced budget in 

this Congress, in this country, and also, like he, was very disappointed when the Senate defeated it. But the reality is, we don’t 

need—we would not need that constitutional amendment if we 

were simply living up to the Tenth Amendment and the Enumerated Powers Clause and to the restrictions on the powers of Congress. 

I think when you begin to see things as radical, for example, as 

the Nation demanding that the Federal Government take over all 

disaster response and the President saying, well, maybe we should 

just cut the locals totally out of that process and maybe what we 

should do is have a FEMA that simply nationalizes every disaster, 

I think you begin to see that we have lost all connection, I think, 

with what the Founding Fathers did. 

And I would argue that in so many other places, and I thought 

Dr. Pilon’s comments about how the Supreme Court has created 

this two-tier interpretation of the Bill of Rights, saying, well, some 

rights are really important and they point to liberty rights or they 

point to criminal rights and they say, these just demand or require 

strict scrutiny, but these other protections in the Constitution, well, 

31

they are not so big a deal. We don’t have to analyze them so closely. 

I think that has gotten us in great trouble because it abandons 

these fundamental principles. It says, look, sure, we had enumerated powers and they dealt with the growth and size of the government, but that is really not as big a deal as an unlawful search or 

an unlawful seizure by the police, and so we are going to give closer scrutiny to these. I don’t think the Founding Fathers intended 

that and I don’t think they spent their time debating these principles. 

Remember, we had previously had an attempt at a National Government. It had failed and we were seeking desperately to strike 

a balance between the power of the States and the power of the 

Federal Government. I think a lot of time and energy went into 

that. I think there are many scholars who say that the authors 

were inspired, and it is sad to me that we have decided, well, some 

of the things they were inspired about were important and we will 

abide by those, but others, such as the Tenth Amendment and Article I, Section 8, well, those aren’t so important. 

And I think Dan makes the point that once you start to skip—

kind of drift a little bit away from those requirements in the Constitution, you can build this massive government and the economic 

consequences are dramatic. 

Senator COBURN. Thank you. Senator Carper. 

Senator CARPER. Thanks, Mr. Chairman, and again to our witnesses, thanks for your testimony and for responding to our questions. 

I think our Chairman alluded to Davy Crockett. What State was 

he from, Tennessee? 

Senator COBURN. Tennessee. 

Senator CARPER. And grew up in Delaware, though, did you 

know that? 

Senator COBURN. He moved West and South. [Laughter.] 

Senator CARPER. No, he didn’t. Davy Crockett, and Congressman 

Shadegg referred to him, as well—when I listened to that story, 

and I have heard it before, what I was struck by was leadership, 

leadership by example, and what I was struck by was a call for a 

sharing of sacrifice from across the board from all the members 

with whom he served, different parties, different parts of the country. 

When I look at the situation we find ourselves in today, frankly, 

I don’t see the kind of leadership that I think he epitomized when 

he stood up and called for what I believe is a sharing of the sacrifice. I think just as his call was answered by his colleagues all 

those years ago, I believe that a leader today, it is harder for a 

member of the Legislative Branch to provide that leadership. 

Speaking as an old governor, in my State, if governors didn’t provide or offer budgets that were balanced, if governors didn’t 

espouse responsible spending programs, if we didn’t call for, in my 

State, rainy day funds, if we didn’t call for being conservative on 

revenue estimates, if we didn’t call for those kinds of things, it is 

not in the nature of a legislative body to step in and fill that legislative vacuum. That is not to take anything away from those of us 

32

who have been privileged to serve here, but I would just acknowledge that. 

I want to come, first of all, if I could, to Congressman Stenholm. 

Two of the issues or two of the initiatives that you and I worked 

on were the Balanced Budget Amendment to the Constitution and 

what I call a statutory line item veto. And one that you and I 

worked on in line item veto, I call it a 2-year test drive for line 

item veto powers, where we give the President enhanced recision 

powers. Basically, we provided in the first bill that passed when I 

was in the House with you, provided for a 2-year test drive with 

the ability for the Congress to override the President’s veto or recision with a simple majority, 50 plus one, 50 percent plus one. 

The other thing I would note, in our Balanced Budget Amendment, we required—and at the time when we were doing it, I 

thought all the elements of it were important. I thought it was important for the Congress to be able to override—to unbalance the 

budget with a three-fifths vote. I thought it was appropriate for us 

to be able to raise the debt ceiling with a three-fifths vote. But 

when I look back on our efforts all those years ago, I think maybe 

the most important provision in our proposal was one whereby the 

President had to propose a balanced budget. 

And I will go back to the idea of executive leadership. My experience in government in my State, and frankly, here and watching 

State and local governments work, cities and counties work, if you 

don’t have a mayor, if you don’t have a county executive, if you 

don’t have a governor, if you don’t have a President who is providing leadership by example, it is darn hard to get the legislature 

or the county council or the city council or the Congress to step up 

and provide that. 

Let me just yield to you, Congressman Stenholm, if I can, and 

ask you to go back and talk a little bit more about enhanced recision powers, the role of the Executive Branch. How do we make 

sure that the Executive Branch doesn’t misuse those powers in an 

effort to, as some with whom I serve—Dr. Coburn and I serve with 

today who are fearful of Congress ceding its powers over appropriations to the President. The fear is that if we give him enhanced recision powers, the President will use those enhanced recision powers to extract from different States, to use those almost to blackmail Senators and Representatives to support positions that we 

otherwise would not. Would you just comment on those, please? 

Mr. STENHOLM. Yes. One of the thought processes and legislative 

processes that I went through over the years leading up to that, 

first off, there was tremendous support for the line item veto in 

certain groups, the more conservative groups saying, we ought to 

give the President line item veto. 

I opposed that and I always asked anyone this simple question. 

Does it matter to you, and I usually used the word ‘‘President Kennedy’’ or ‘‘President Reagan,’’ does it matter who it is you are going 

to give the line item veto? If they said, no, it doesn’t matter, fine, 

that is an honest position. But if you hesitate for just a moment, 

depending on whether you are looking at a liberal President or a 

conservative President—the eye is in the beholder—then I have got 

concern with that. 

33

Therefore, we came then ultimately to saying that it doesn’t matter to me—it matters to me a whole lot. I don’t want to give any 

President one-third plus one minority override of the Congress of 

the United States. I did not want to do that. It didn’t matter who 

the President was. But since we get into this debate about spending, and we are into it again, and I think it is fascinating that at 

no time in the last 5 years has there been any recision of any 

spending. We are talking about leadership and accountability. Say 

that respectfully, now. 

I am a great respecter of the office of the President of the United 

States, but if we were having this discussion today and we Democrats were in the majority, I suspect there would be a different tone 

of the concern of the deficits today, with all due respect to Heritage 

and Cato, who I have found to be tremendously credible. I will say 

over the years, my 26 years, both of these organizations have performed a tremendous service for those of us privileged to serve in 

the Congress with the battle of ideas. I don’t agree with them 100 

percent of the time, but I think I can say that I have agreed a majority of the time, 50 percent plus one. 

But having said that, I came down to basically this. I don’t mind 

giving any President line item veto modified, by that saying that 

if he picks out something that Charlie Stenholm put into the budget, into the appropriations, somewhere there, and the President 

says, no, it should not be there, all I want is a chance to have 50 

percent of my colleagues to agree with me. If they agree with the 

President, it ought to go. 

I think that is something that gives transparency to accountability. That was the process we went through, and I think it is 

still a very good process because it does bring accountability and 

transparency to many of these issues and it also would cause those, 

if you are going to ask for something to be in the budget, you have 

to be prepared to defend it in the context of your colleagues, 50 percent plus one. 

Senator CARPER. Thanks very much. 

If I could, Dr. Mitchell, I just may direct a question to you. I 

probably should know these numbers better than I do, but my understanding is that revenues to the Federal Government as a percentage of GDP go up and down, sometimes as high as maybe the 

low 20 percent, sometimes as low as 17 percent, at least in my lifetime. I am 58 years old. And probably during World War II, that 

percentage was well above 20, 22, 25 percent during that period of 

time. 

Today, we are spending, I am told, about 17.5 percent—revenues 

constitute, rather, about 17.5 percent of our GDP. I think compared 

to the last 10, 20, maybe 30 years, that is fairly low. If you look 

at the difference between revenue as a percentage of GDP at 17.5 

percent, spending as a percentage of GDP is about 20.5 percent. 

Those 3 percent, I think, pretty much account for a $315, $320 billion deficit. Some would argue that if we just raised revenues by 

those 3 percent, we would be able to balance the budget. 

I don’t buy any of that argument. I think there is plenty that we 

can do. Dr. Coburn and I are interested in—not just interested, but 

we are working hard to clamp down on improper payments. Those 

are probably worth about $50 billion a year. We are about to go to 

34

work on making sure that the revenues that are owed, that we 

know who owes the revenues that are not being collected and that 

is at least $100 billion a year, maybe twice that, that we go after 

that. Congressman Stenholm has talked about trying to make sure 

that we are using the right COLA that we use to adjust payments. 

I know I suspect all of us are supporters of BRAC as an effort to 

try to cut some spending out there. I have been working on flood 

insurance for 15 years, trying to make sure we don’t reward people 

for building in harm’s way. There is a whole lot of stuff we can do, 

means testing both parts of Medicare and maybe Medicaid, trying 

to make sure that folks don’t dump their assets in order to be eligible for Medicaid. There is a whole lot that we can do other than 

just raising revenues to close that deficit. So I wouldn’t suggest 

that we reduce the entire deficit, but if we could think about it, if 

we could actually make sure that $50 billion worth of improper 

payments didn’t get paid every year, if we could even collect half 

of the $200 billion that we think is out there to be collected but 

not being collected, and if we could do some of these other things 

that I mentioned, the difference between revenue as a percentage 

of GDP and spending as a percentage of GDP wouldn’t be 3 percent. It would be a whole lot less than that. 

So that is a long way of asking this question. Do you see any rationale for raising revenue as a percentage of GDP, or how would 

you practically go about reducing that difference, that 3 percentage 

points? How would you propose that we do it other than some of 

the things that I have mentioned? 

Mr. MITCHELL. If you look at the last 50 years, basically from the 

end of World War II until today, Federal tax revenues have averaged 18.1 percent of GDP. We are a little bit below that now, so 

if you look at the CBO long-range forecast, even with the President 

Bush tax cuts being made permanent, we are supposed to sort of 

slowly creep up to about that level. Now, that still begs the issue 

of, OK, well, spending is at 20.5 percent of GDP and even if we are 

at our long-term average of revenues, what needs to be done? 

I, of course, would prefer, looking at the economic data, the economic literature, that we reduce the size of government. Now, that 

doesn’t take, I think, too much heavy lifting. If revenues are going 

to grow just normally, 7 percent a year in nominal terms, which 

means about 4 percent, say, in real terms, if we can somehow just 

limit government growth to twice the rate of inflation, we would 

pretty quickly get to a balanced budget for those that think a balanced budget is nirvana. 

Again, as I stated before, I am not sure it is nirvana. Norway, 

in large part thanks to oil revenues, has a budget surplus, but government spending is at 50 percent of GDP and they are suffering 

a lot of economic problems. They just happen to have the revenue 

to finance that government, but I don’t think that is—we wouldn’t 

want to trade places with Norway. Maybe we would like their oil, 

but we certainly wouldn’t want to trade places with their fiscal policy. 

In terms of whether revenue should be higher than 18 percent 

of GDP, I am tempted to say no, but let me cite an example of how 

I would say yes. Hong Kong has a 16.5 percent flat tax. The tax 

35

revenues in Hong Kong are a little bit more than 20 percent of 

GDP. 

I would be perfectly happy to trade tax systems with Hong Kong. 

I suspect the lower incentives to evade and avoid the tax system, 

the faster economic growth—Hong Kong has been the fastest-growing economy in the world ever since the end of World War II—for 

a whole host of reasons, we could wind up collecting more revenue, 

but it wouldn’t be as a result of imposing additional burdens on the 

American people. It would be the result of having a tax system that 

just facilitates and makes it easier for an economy to grow and for 

people to pay their taxes without having nearly the incentive to 

utilize lawyers, lobbyists, accountants, financial planners, and people like that to minimize their tax bills, either legally or illegally. 

So in that special circumstance of utilizing better tax policy to 

get additional revenue, you could get a ‘‘yes’’ out of me, but as a 

general rule, no, I don’t think the problem we have is a problem 

of too little revenue coming from the American people. 

Senator CARPER. Thank you very much. 

Senator COBURN. Thank you. 

I tend to recall a graph I saw on economic growth in the United 

States, and every time that tax revenue got above 19 percent of 

GDP, economic growth declined. Every time it was below 19 percent, economic growth grew, and that is on a trend line from, I believe, 1951 forward. So 19 percent somehow in our economy seems 

to be the cutoff at which, when tax revenues rise to that level, we 

see an impediment to economic growth. 

I wanted to clear up some things, because I think one of the 

problems in Washington that has caused some of our problems is 

we don’t talk real numbers. We have had people talk today about 

the deficit. You all have mentioned the deficit. But, you know, the 

real number that impacts our economy is not the deficit. The real 

number that impacts our economy is how much do we add to the 

debt every year, and what we publish as the deficit versus what 

we add to the debt are two totally different numbers. 

One of the things that I would just like to add, we really ought 

to be talking about the real numbers because the deficit doesn’t include any off-line emergency spending, which goes straight to debt. 

We never put that in the number. So when we are comparing—for 

example, this year already, we have passed almost $200 billion of 

emergency spending, of which a large portion of that, or $100 billion, if you look at that into the real deficit this year, that is close 

to $500 billion in terms of increased debt that our kids pay. So I 

think part of our problem is the numbers we use. 

An interesting thing that we have found also is our budget scoring rules cause us to do the wrong thing economically. For example, we no longer lease-purchase any buildings in the Federal Government. The reason we don’t lease-purchase any buildings in the 

Federal Government is because if you lease-purchase it, it is scored 

as a cost to the year that you signed the lease-purchase rather 

than amortized over the lease-purchase. So we lose two ways. One 

is, first of all, we don’t have any ownership. Two, we lose in the 

appreciation of the asset. That is about $3 billion a year we are losing right now because we lease rather than lease-purchase, and it 

is sort of our oversight. 

36

The other thing that I wanted to bring out is there is a real difference, and a philosophical difference, as Crockett called for 

shared sacrifice. He didn’t call for the government to do it through 

forced sacrifice of other people. He called for shared sacrifice of individuals. There is somewhat of a philosophical difference between 

the two sides of the aisle on where that sacrifice should come, and 

the thing that I have talked about with Katrina is that charity cannot be made without real sacrifice. 

So I am tremendously thrilled with the testimony we have had 

today and I want to thank each of you for being here, and especially Congressman Shadegg. This was a real sacrifice on his part 

on things he needed to do in Arizona and he gave those up to come 

and testify and I want to tell you, John, I appreciate it. 

Congressman Stenholm, I want to offer a formal request that you 

come and visit with me. I believe in pay-as-you-go. I believe in 

doing the right things and I believe we ought to institute everything we can to put fiscal discipline back within us. 

But I would also say, we don’t need any of that if we will just 

follow the Constitution, because if we follow the Constitution, we 

won’t have to have an expedited recision. There won’t need to be 

one because we won’t be putting it up there if it is not a constitutionally valid piece of legislation in the first place. We saw what 

happened in the Senate this last week is that when you—this 

whole theory of earmarks. Earmarks in the long run hurt us all. 

They don’t help us. They hurt us all, because the sum of the whole 

is much less of what the States get versus the damage that is 

caused by earmarks. 

So we have a lot of work to do before us. I thank you for your 

testimony. I look forward to hearing and working with each of you 

in the future, and the hearing is adjourned. 

[Whereupon, at 4:16 p.m., the Subcommittee was adjourned.] 

(37)

A P P E N D I X 


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Æ


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