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[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

                       THE BROKEN BUDGET PROCESS:
                 PERSPECTIVES FROM FORMER CBO DIRECTORS

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, SEPTEMBER 21, 2011

                               __________

                           Serial No. 112-15

                               __________

           Printed for the use of the Committee on the Budget

                       Available on the Internet:
                       www.gpo.gov/fdsys/browse/
            committee.action?chamber=house&committee=budget

                                _____

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                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey            CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri               LLOYD DOGGETT, Texas
TOM COLE, Oklahoma                   EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California           JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah                 BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana          MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma             TIM RYAN, Ohio
DIANE BLACK, Tennessee               DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin            GWEN MOORE, Wisconsin
BILL FLORES, Texas                   KATHY CASTOR, Florida
MICK MULVANEY, South Carolina        HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas                PAUL TONKO, New York
TODD C. YOUNG, Indiana               KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director

                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, September 21, 2011...............     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     2
    Hon. Chris Van Hollen, ranking minority member, Committee on 
      the Budget.................................................     3
        Prepared statement of....................................     4
    Alice M. Rivlin, Brookings Institution and Georgetown 
      University.................................................     5
        Prepared statement of....................................     8
    Rudolph G. Penner, institute fellow, the Urban Institute.....    10
        Prepared statement of....................................    11

 
                       THE BROKEN BUDGET PROCESS:
                 PERSPECTIVES FROM FORMER CBO DIRECTORS

                              ----------                              

                     WEDNESDAY, SEPTEMBER 21, 2011

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in room 
210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of 
the Committee] presiding.
    Present: Representatives Ryan, Calvert, Price, McClintock, 
Stutzman, Lankford, Black, Mulvaney, Huelskamp, Young, Amash, 
Guinta, Van Hollen, Doggett, Blumenauer, McCollum, Pascrell, 
Wasserman Schultz.
    Chairman Ryan. The committee will come to order. Welcome 
all to this hearing. The purpose of today's hearing is to 
highlight the need to reform our broken budget process. This 
summer, we got a first-hand look at how bad things have gotten. 
After a request from the president to increase the debt limit, 
Congress was seemingly faced with basically two impossible 
choices. Either hand the president a blank check to continue 
these unsustainable spending policies, or let America default. 
Fortunately, Congress was able to chart a middle course that 
coupled immediate spending restraints with a process to cut at 
least a dollars worth of spending for every dollar increase in 
the debt limit. But it should not have gotten to this point and 
that is the point. Congress created a budget process that was 
intended to prevent this kind of ad-hoc policy making. Clearly, 
the process is not working.
    The budget proposed by the president in February offered no 
plan to deal with what he has since acknowledged as the 
nation's growing physical challenges. Meanwhile, it has been 
874 days. I will say that again. It has been 874 days since the 
Senate even bothered to try to pass a budget. Congress has 
struggled with this process for a long time. This year's 
breakdown in the federal budget process, however, could not 
have happened at a worse time. Right now, it is contributing to 
the crippling uncertainty about fiscal policy that is 
discouraging businesses from making the kind of long-term 
investments that create jobs. There are parts of the budget 
process that are irredeemably broken, but other parts still 
work well, even if they could use some improvement.
    In the 1974 Budget Act, it called on Congress to review the 
entire federal budget to both ascertain the economic impacts of 
our budget decisions and to help us make informed choices about 
how to raise revenue and how to allocate spending. To 
accomplish this, the Act established the House and the Senate 
Budget Committees and charged them with the responsibility to 
develop and enforce annual budget resolutions.
    In addition, it created CBO, to give us non-partisan, 
objective budget estimates and economic projections. CBO is far 
from perfect, but it is important to note that before CBO was 
created, Congress was reliant on the executive branch for 
budget projections and cost estimates of legislation. I do not 
agree with everything CBO produces, but I do think CBO strives 
to provide us with non-partisan, independent analysis to help 
us do our jobs.
    Today, we are going to be hearing from two former CBO 
directors. Actually, the first two former CBO directors. In 
addition to being former CBO directors, Alice Rivlin and Rudy 
Penner, are witnesses here today, have had long careers as 
budget experts in Washington, and we are fortunate to have the 
benefit our their wisdom today. Before I yield, I want to 
emphasize one point. There is a lot we can do to fix our broken 
budget process, but process reform alone cannot work unless 
members of Congress have the will to make it work. Reform or no 
reform it will take political courage and leadership to get our 
fiscal house in order. I am proud to have worked with members 
of this Committee to pass this year's budget on time and even 
those members who disagreed with our reforms contributed to 
that process for which I am grateful. To his credit Mr. Van 
Hollen offered a substitute budget during floor consideration 
of the budget resolution. That is how the process is supposed 
to work. Americans deserve a real debate about our fiscal 
future and the budget process is an appropriate form for that 
debate. Let's fix what is broken and build upon what is working 
and with that I would like to yield to the Ranking Member, Mr. 
Van Hollen.
    [The prepared statement of Chairman Paul Ryan follows:]

            Prepared Statement of Hon. Paul Ryan, Chairman,
                        Committee on the Budget

    Welcome all, to this hearing.
    The purpose of today's hearing is to highlight the need to reform 
our broken budget process.
    This summer, we got a first-hand look at how bad things have 
gotten.
    After a request from the President to increase the debt limit, 
Congress was seemingly faced with two impossible choices: Either hand 
the President a blank check to continue his unsustainable spending 
policies, or let America default.
    Fortunately, Congress was able to chart a middle course that 
coupled immediate spending restraints with a process to cut at least a 
dollar's worth of spending for every dollar increase in the debt limit.
    But it shouldn't have gotten to this point. Congress created a 
budget process that was intended to prevent this kind of ad hoc 
policymaking.
    Clearly, that process isn't working.
    The budget proposed by the President in February offered no plan to 
deal with what he has since acknowledged are the nation's growing 
fiscal challenges.
    Meanwhile, it has been 874 days since the Senate even bothered to 
pass a budget.
    Congress has struggled with this process for a long time. This 
year's breakdown in the federal budget process, however, could not have 
happened at a worse time.
    Right now, it is contributing to the crippling uncertainty about 
fiscal policy that is discouraging businesses from making the kinds of 
long-term investments that create jobs.
    There are parts of the budget process that are irredeemably broken, 
but other parts still work well, even if they could use improvement.
    The 1974 Budget Act called on Congress to review the entire federal 
budget to both ascertain the economic impacts of our budget decisions 
and to help us make informed choices about how to raise revenue and 
allocate spending.
    To accomplish this, the Act established the House and Senate Budget 
Committees and charged them with the responsibility to develop and 
enforce annual budget resolutions.
    In addition, it created CBO to give us non-partisan, objective 
budget estimates and economic projections.
    CBO is far from perfect. But it is important to note that before 
CBO was created, Congress was reliant on the Executive Branch for 
budget projections and cost estimates of legislation.
    I don't agree with everything CBO produces, but I do think CBO 
strives to provide us with non-partisan, independent analysis to help 
us do our jobs.
    Today, we will be hearing from two former CBO directors--the first 
two, in fact.
    In addition to being former CBO directors, both Alice Rivlin and 
Rudy Penner, our witnesses today, have had long careers as budget 
experts in Washington. We are fortunate to have the benefit of their 
wisdom today.
    Before I yield, I want to emphasize one point: There's a lot we can 
do to fix our broken budget process, but process reform can't work 
unless members of Congress have the will to make it work.
    Reform or no reform, it will take political courage and leadership 
to get our fiscal house in order.
    I am proud to have worked with members of this committee to pass 
this year's House budget on time. And even those members who disagreed 
with our reforms contributed to that process, for which I am grateful.
    To his credit, Mr. Van Hollen offered a substitute budget during 
floor consideration of the budget resolution.
    Americans deserve a real debate over our fiscal future, and the 
budget process is an appropriate forum for that debate. Let's fix 
what's broken and build upon what's working.
    With that, I yield to the Ranking Member, Mr. Van Hollen.

    Mr. Van Hollen. Thank you, thank you very much Mr. 
Chairman, and thank you for calling this hearing to explore 
ways that we might be able to improve the budget process and I 
join my friend the Chairman in welcoming our distinguished 
witnesses here today, two veterans of the budget process. And I 
do think there are some budget process measures that can help 
to improve the process. The Chairman mentioned the 
establishment of the Congressional Budget Office. I have 
introduced, along with many colleagues on this Committee, a 
piece of legislation that would expedite congressional 
consideration of spending cut proposals and other measures 
proposed by the president, by the Executive Branch to give 
those an expedited review in certain areas of the budget. I 
also believe that the PAYGO rule that has been in effect at 
different periods has played a useful, even though limited, 
role in trying to prevent the deficit from getting even worse. 
However I want to now turn to the Chairman's concluding point.
    Our rules, our congressional rules, our congressional 
process are like flashing yellow lights like stop signs. When 
Congress chooses to ignore them they do not do any good and 
unlike stop signs that are enforced by an external police 
power, Congress of course, is the ultimate enforcer of its own 
rules. Which means when it decides to blow through the yellow 
flashing lights or the stop signs it can decide to do that, 
which brings me to my main point and the point the Chairman 
concluded on which is the real challenge we face is not a 
change in the rules. There may be some things we can do to 
modify and improve them. I do not disagree with that and I 
welcome the opportunity to explore this but our fundamental 
problem is not the budget process rules; it is the lack of 
political consensus and it is the lack of political will. We 
are now in an era of divided government. We have a Democratic 
president. We have a very close Democratic majority in the 
Senate. We have Republican control in the House. In the era of 
divided government the only thing that stands between divided 
government that works for the country and dysfunctional 
government is the willingness to compromise. And I do not mean 
just find common ground because all of us have very different 
views on how to tackle some of these issues. So it is going to 
require a compromise in order to move some of these issues 
forward and I will just conclude with that because this is the 
Budget Committee; we spend a lot of time looking at the 
deficit.
    We have within the last 18 months had three groups, three 
bipartisan groups that looked at ways to try and address our 
deficit problem over the long run. We had Rivlin-Domenici. We 
had Simpson-Bowles. We have the Gang of Six that does not have 
a piece of legislation but has a concept. All three of those 
situations represent the kind of framework that is put together 
when you have bipartisan compromise. Nobody liked every 
provision in those recommendations. I certainly did not, but 
the overall framework addressed the way forward in a bipartisan 
way. Again not finding common ground because not everybody 
agreed with every provision in those reports but tough 
compromises made to try and advance the good of the country.
    So again I welcome the opportunity to explore ways to 
improve the budget process but as you said Mr. Chairman I think 
we all recognize at the end of the day, especially in the areas 
of divided government, only principled compromise can help move 
us forward for the good of the country and I thank you.
    Chairman Ryan. Thank you and since you are the only two 
witnesses we will not restrict you to the hard five minutes. So 
Dr. Rivlin why do we not start with you and then Rudy we will 
go with you.
    [The prepared statement of Chris Van Hollen follows:]

 Prepared Statement of Hon. Chris Van Hollen, Ranking Minority Member,
                        Committee on the Budget

    Thank you, Mr. Chairman, for holding this hearing on the budget 
process. And I join my friend, the Chairman, in welcoming our 
distinguished witnesses here today, two veterans of the budget process.
    I do think there are some measures, budget process measures, that 
can help improve the process. The Chairman mentioned the establishment 
of the Congressional Budget Office. I've introduced, along with many 
colleagues on this committee, a piece of legislation that would 
expedite Congressional consideration of spending cut proposals and 
other measures proposed by the President and by the executive branch, 
to give those an expedited review in certain areas of the budget.
    I also believe that the PAYGO rule that has been in effect during 
different periods has played a useful, even though limited, role in 
trying to prevent the deficit from getting even worse. However I want 
now to turn to the Chairman's concluding point. Our rules, our 
Congressional rules on Congressional process, are like flashing yellow 
lights, and like stop signs. When Congress chooses to ignore them they 
don't do any good, and unlike stop signs that are enforced by an 
external police power, Congress of course, is the ultimate enforcer of 
its own rules. Which means when it decides to blow through the flashing 
yellow lights or the stop signs it can decide to do that.
    That brings me to my main point that the Chairman concluded on, 
which is that the real challenge that we face is not a change in the 
rules, there may some things that we can do to modify and improve, I 
don't disagree with that and I welcome the opportunity to explore this, 
but our fundamental is not the budget process rules, it's the lack of 
political consensus and it's the lack of political will. We're now in 
an era of divided government. We have a Democratic president, we have a 
very close Democratic majority in the Senate, and we have Republican 
control in the House. And in an era of divided government the only 
thing that stands between divided government that works for the country 
and dysfunctional government is the willingness to compromise. And I 
don't mean just finding common ground because some of us have very 
different views on how to tackle some of these issues. So, it is going 
to require compromise in order to move some of these issues forward.
    And I'll just conclude with that because this is the Budget 
Committee, we've spent a lot of time looking at the deficit. We have, 
in the last 18 months, had three groups, three bipartisan groups that 
looked at ways to try and address our deficit problem over the long 
run. We had Rivlin-Domenici, we had Simpson-Bowles, and we have the 
Gang of Six--who doesn't have legislation but has a concept. All three 
of those situations represent the kind of framework that's been put 
together when you have bipartisan compromise. Nobody liked every 
provision in those recommendations; I certainly didn't, but the overall 
framework addressed the way forward in a bipartisan way. Again, not 
finding common ground because not everybody agreed with every provision 
in every one of those reports, but tough compromises were made to try 
and advance the good of the country.
    So, again I welcome the opportunity to explore ways to improve the 
budget process but as you said, Mr. Chairman, I think we all recognize 
at the end of the day, especially in the era of divided government, 
only principled compromise can help move us forward for the good of the 
country. Thank you.

    STATEMENTS OF ALICE M. RIVLIN, SENIOR FELLOW, BROOKINGS 
   INSTITUTE; AND RUDOLPH G. PENNER, INSTITUTE FELLOW, URBAN 
                           INSTITUTE

                  STATEMENT OF ALICE M. RIVLIN

    Dr. Rivlin. Thank you very much Mr. Chairman, Mr. Van 
Hollen. There is no doubt that the budget process is broken. 
The clearest evidence is the fact that we are all counting on 
this Joint Select Committee with its extraordinary powers and 
its unusual composition to avoid total gridlock or a replay of 
the near catastrophic debt ceiling brinkmanship of this summer. 
Now I am an optimist about the chances that the Joint Select 
Committee with the strong support of the president and the 
leadership in both Houses and both parties will be able to 
agree on actions that will stabilize the rising debt and set 
the Federal budget on a sustainable path.
    However, even if the Joint Select Committee succeeds the 
budget process has failed. Our much vaunted democracy should 
not have to abandon its normal decision processes and 
concentrate power in the hands of ad hoc group even if one of 
them is Mr. Van Hollen, to solve a budget problem. The regular 
budget process of which this Committee is an essential part 
should have functioned long before now to put in place both a 
near term budget and a sustainable long term plan.
    Congress has no choice; you have to fix the budget process 
but as the Chairman pointed out in his opening remarks a better 
process will not make budget decisions easy or create the will 
to compromise and solve problems without which a diverse 
democracy cannot move forward. Process can either hamper 
decision making or facilitate it but only at the margins. The 
current congressional process makes it harder to make fiscally 
responsible budget decisions for reasons I will get to in a 
minute, but bad process is a symptom not a cause of 
unwillingness to make the compromises necessary to solve hard 
problems. No process will work unless the participants want it 
to work.
    Now budget making, as no one needs to tell you, is 
inherently hard. Even the budget of a small town or a small 
company is difficult to agree on because there are always more 
claims than resources. The budget of a huge country presents 
added dimensions of difficulty since the government's budget 
affects the economy and is affected by it in ways that are hard 
to document and provide room for sharp disagreement.
    In the United States we have a special problem. The checks 
and balances built into the Constitution make budgeting 
especially complex and require a multistage process that 
greatly compounds the difficulty of getting budget decisions 
made. Countries with a Westminster type parliamentary system do 
not consume as much time and energy or rhetoric in making 
budgets as we do. The results may not be better but the process 
is far more efficient. The prime minister's party or coalition 
writes the budget and the parliament after a short debate 
approves it, sounds great. Voting down the budget means a new 
election so it is not done lightly, but our Constitution was 
not designed for efficiency. On the contrary the founding 
fathers designed a system of checks and balances that disburses 
power and slows the decision making process sometimes to the 
point of gridlock.
    Moreover since the power centers or sub-power centers such 
as executive agencies and congressional committees rarely want 
to relinquish their particular piece of decision making 
authority as new actors and responsibilities are added the 
process tends to accrete complexities over time until it 
becomes dysfunctional. The congressional budget process is at 
that point. It needs a complete overhaul to enable it to 
function effectively within the limits of our Constitution.
    The Budget Act of 1974, which created the Budget Committees 
and the Congressional Budget Office, which I am glad to hear 
good things spoken about because I am very proud of it as I 
know Rudy is too, it created the framework for the decisions. 
Before its enactment, as the Chairman noted, Congress had the 
power of the purse but no organized way of exercising it and 
was very dependent on the administration for analysis.
    The weakness of the 1974 reforms, however, contributed to 
the breakdown of the process that we are witnessing today.
    First, the process was unnecessarily complicated and hard 
to understand. The schedule for making budget decisions was 
lengthy and complex and, in fact, in the beginning it was 
worse; there were two budget resolutions. Even slipping the 
fiscal year to October 1, did not allow time for all the 
complex steps to be completed on time. Moreover the new process 
had been layered on top of an already redundant committee 
structure. As far back as 1971, I testified that the 
distinction between authorizing and appropriating had blurred 
over the years and that budget reform should involve abolishing 
that distinction altogether. My proposed committee structure 
had program committees with jurisdiction over spending areas, 
defense, health, et cetera, a revenue committee and a budget 
committee in each House. You can imagine how well that went 
over.
    Second, much of the spending side of the budget, the 
mandatory programs was essentially unaffected by the budget 
process. In 1974, mandatory programs not counting interest were 
only 11 percent of total spending. In 2010, however, the 
mandatory portion was 55 percent of the total. Moreover these 
programs especially Medicare and Medicaid are the main drivers 
of projected spending over the next decade and beyond.
    Third, the time horizon for many decisions was too short. 
The budget impact of spending programs and tax changes may 
build up slowly and become increasingly expensive over time or 
it may be deliberately designed to do that. Over the years the 
participants have struggled with different ways of taking a 
longer view. Five year window, 10 year window, you know the 
history but never solved the problem. Moreover the major 
retirement programs which now drive the budget can only be 
changed with substantial lead time and are not part of the 
regular budget process.
    So that leads me to a few very general principles of how to 
reform. First, include all spending and revenue in the budget 
process. Under the current process a dwindling portion of the 
budget is subject to annual scrutiny and increasingly complex 
rules while major mandatory programs and the tax code operate 
on automatic pilot. No wonder the process broke down and the 
Joint Select Committee had to be created to bring revenues and 
mandatory spending into a comprehensive decision process. And 
no wonder the Congress has chosen to put increasing proportions 
of spending into the mandatory category and into the tax code.
    Now I am not suggesting that you review Medicare or Social 
Security laws or the Tax Code in detail every year. That would 
be chaotic. In fact changes in retirement programs and taxes 
should be made as infrequently as possible with long lead times 
so that people and businesses can plan their lives. But the 
Congress must bring the retirement programs and tax 
expenditures into a process of periodic review and decision so 
that you can actually control the major drivers of the budget 
and the deficit and the debt. It should vote a comprehensive 
long term budget, review actual spending and revenues in 
relation to the intended long term budget, and have a process 
for deciding what to do if the numbers are veering 
significantly from the intended track.
    Second, take a longer view. Discretionary spending should 
be reviewed less frequently, moving to a biennial 
appropriations process would help, it would give the Congress 
more time for oversight and the Executive Branch more time for 
planning and implementation. Mandatory spending and tax 
expenditures should be reviewed, perhaps, every five or six 
years.
    Third, simplify the structure and reduce the number of 
decision points. Reforming the budget process will be next to 
impossible unless the Congress is willing to revamp the whole 
committee structure with respect to activities that impact the 
budget. I still believe that authorizing and appropriating are 
no longer meaningful distinctions and having the major 
mandatory programs under the jurisdiction of the tax writing 
committees is not sensible. Too much work for them. A better 
structure would be to create six or eight program or spending 
committees, a revenue committee and a budget committee to put 
it all together.
    Finally, recognize that our Constitution requires 
willingness to compromise as both the Chairman and the Ranking 
Member have eloquently said. The founding fathers bequeathed us 
a system of checks and balances that make it very hard to get 
decisions made unless the participants work tirelessly to make 
it work. It requires negotiation between the Executive and 
Legislative Branches, between the two Houses of Congress even 
when all are controlled by the same party. I am a veteran of 
the first two years of the Clinton Administration. Believe me 
it is harder to negotiate with your own folks. It requires 
negotiation and compromise between the political parties 
especially but not exclusively when different parties are in 
control. No budget process reform will work well until 
participants realize that making this complex structure 
function requires a patient willingness to try to understand 
each other and to work together to make sustainable budgets. 
Thank you Mr. Chairman.
    [The prepared statement of Alice M. Rivlin follows:]

                Prepared Statement of Alice M. Rivlin,*
            Brookings Institution and Georgetown University

    Mr. Chairman and Members of the Committee: There is no doubt that 
the budget process is broken. The clearest evidence is the fact that we 
are all counting on the Joint Select Committee (JSC)--with its 
extraordinary powers and unusual composition--to avoid total gridlock 
or a replay of the near-catastrophic debt ceiling brinkmanship. I am an 
optimist about the chances that the JSC, with the strong support of the 
president and the leadership in both houses and both parties, will be 
able to agree on actions that will stabilize the rising debt and set 
the federal budget on a sustainable path. However, even if the JSC 
succeeds, the budget process has failed. Our much-vaunted democracy 
should not have to abandon its normal decision processes and 
concentrate power in the hands of an ad hoc group to solve a budget 
problem. The regular budget process, of which this Committee is an 
essential part, should have functioned long before now to put in place 
both a near-term budget and a sustainable long term plan.
---------------------------------------------------------------------------
    *Alice M. Rivlin is a Senior Fellow at the Brookings Institution 
and a Visiting Professor at Georgetown University. The views expressed 
in this statement are strictly her own and do not necessarily reflect 
those of staff members, officers, or trustees of the Brookings 
Institution or Georgetown University.
---------------------------------------------------------------------------
    Congress has no choice: you have to fix the budget process. But a 
better budget process will not make budget decisions easy or create the 
will to compromise and solve problems, without which a diverse 
democracy cannot move forward. Process can either hamper decision-
making or facilitate it, but only at the margins. The current 
congressional budget process certainly makes it harder to make fiscally 
responsible budget decisions, for reasons I will get to in a minute. 
But bad process is a symptom, not a cause of unwillingness to make the 
compromises necessary to solve hard problems. No process will work well 
unless the participants in the process want it to work.
    Budget-making is inherently hard. Even the budget of a small town 
or a small company is difficult to agree on because there are always 
more claims than resources. The budget of a huge country presents an 
added dimension of difficulty, since the government's budget affects 
the economy and is affected by it in ways that are often hard to 
document and provide room for sharp disagreement. Moreover, in the 
United States the checks and balances built into the Constitution make 
budgeting especially complex, and require a multi-stage process that 
greatly compounds the difficulty of getting budget decisions made.
    Countries with Westminster-type parliamentary systems do not 
consume as much time, energy, or rhetoric in making budgets as we do. 
The results may not be better, but the process is far more efficient. 
The prime minister's party or coalition writes the budget and the 
parliament, after a short debate, approves it. Voting down the budget 
means a new election, so it is not done lightly.
    But our Constitution was not designed for efficiency. On the 
contrary, coming off a revolution against a king they perceived as 
dictatorial, the Founding Fathers designed a system of checks and 
balances that disperses power and slows the decision-making process, 
sometimes to the point of gridlock. Moreover, since the power centers 
(or sub-power centers, such as executive agencies or congressional 
committees) rarely want to relinquish their particular piece of 
decision-making authority as new actors and responsibilities are added, 
the process tends to accrete complexities over time until it becomes 
dysfunctional. The budget process is at that point. It needs complete 
overhaul to enable it to function effectively within the limits of our 
Constitution.
                       why the process broke down
    The Budget and Impoundment Act of 1974, which created the Budget 
Committees, the Congressional Budget Office (CBO) and the current 
framework for budget decisions, was a much-needed reform. Before its 
enactment, Congress theoretically had the power of the purse under the 
Constitution, but no organized way of exercising it. The executive 
branch, whose power was much better centralized by the Office of 
Management and Budget for the benefit of the President, wielded 
disproportionate budgetary power. But weaknesses in the 1974 reforms 
contributed to the break-down of the process we are witnessing today.
    First, the process was unnecessarily complicated and hard to 
understand. The schedule for making budget decisions was lengthy and 
complex. (In fact, originally there were two budget resolutions.) Even 
slipping the fiscal year to October 1 did not allow time for all the 
complex steps to be completed on time. Moreover, the new process had 
been layered on top of an already redundant committee structure. I 
testified in 1971 that the distinction between authorizing and 
appropriating had blurred over the years and budget reform should 
involve abolishing the distinction altogether. My proposed committee 
structure had ``program committees'' with jurisdiction over spending 
areas (defense, health, etc.), a revenue committee and a budget 
committee in each house. You can imagine how well that went over!
    Second, much of the spending side of the budget--the mandatory 
programs--was essentially unaffected by the budget process. In 1974 
mandatory programs, not counting interest, were only 11 percent of 
total spending. In 2010, the mandatory portion was 55 percent of the 
total. Moreover, these programs, especially Medicare and Medicaid, are 
the main drivers of projected spending over the next decade and beyond.
    Third, the time horizon for many decisions was too short. The 
budget impact of spending programs and tax changes may build up slowly 
and become increasingly expensive over time (or may be deliberately 
designed to do that). Over the years, the participants struggled with 
different ways of taking a longer view (five-year window, ten-year 
window), but never solved the problem. Moreover, the major retirement 
programs, which now drive the budget, can only be changed with 
substantial lead time and are not part of the regular budget process.
          essential ingredients of an effective budget process
    Process reform is normally incremental, but the time for 
incremental reforms in the budget process is over. The Congress should 
blow it up and start over from first principles. Let me offer some 
general prescriptions.
 Include all spending and revenue in the budget process
    Under the current process, a dwindling portion of the budget 
(discretionary spending) is subject to annual scrutiny and increasingly 
complex rules, while major mandatory programs and the tax code operate 
on automatic pilot. No wonder the process broke down and the JSC had to 
be created to bring revenues and mandatory spending into a 
comprehensive decision process. And no wonder the Congress has chosen 
to put increasing proportions of spending into the mandatory category 
and into the tax code.
    I am not suggesting that the Medicare or Social Security laws or 
the tax code be reviewed in detail every year. In fact, changes in 
retirement programs and taxes should be made as infrequently as 
possible and with long lead times, so that people and businesses can 
plan their lives. But the Congress must bring the retirement programs 
and tax expenditures into a process of periodic review and decision, so 
that you can actually control the major drivers of the budget, the 
deficit and the debt. It should vote a comprehensive long-term budget, 
review actual spending and revenues in relation to the intended long-
term budget, and have a process for deciding what to do if the numbers 
are veering significantly from the intended track.
 Take a longer view
    Discretionary spending should be reviewed less frequently. Moving 
to biennial appropriations would help. It would give the Congress more 
time for oversight and the executive branch more time for planning and 
implementation. Mandatory spending and tax expenditures should also be 
reviewed, perhaps on a five or six year cycle.
 Simplify the structure and reduce the number of decision 
        points
    Reforming the budget process will be next to impossible unless the 
Congress is willing to revamp the whole committee structure with 
respect to activities that impact the budget. Authorizing and 
appropriating are no longer meaningful distinctions, and having the 
major mandatory programs under the jurisdiction of the tax-writing 
committees is not sensible. A better structure would be to create six 
to eight program or spending committees, a revenue committee and a 
budget committee (to put it all together).
               above all, recognize that our constitution
                   requires willingness to compromise
    The Founding fathers bequeathed us a system of checks and balances 
that make it extremely difficult to get decisions made unless 
participants work tirelessly to make it work. It requires negotiation 
between the legislative and executive branches and between the two 
houses of Congress, even when all are controlled by the same party. It 
requires negotiation and compromise between the political parties, 
especially but not exclusively when different parties are in control of 
one house or one branch. No budget process reform will work well until 
participants realize that making this complex structure function 
requires a patient willingness to try to understand each other and to 
work together to make responsible, sustainable budgets.
    Thank you, Mr. Chairman, and members of the Committee.

    Chairman Ryan. Thank you Alice. Dr. Penner.

                 STATEMENT OF RUDOLPH G. PENNER

    Dr. Penner. Thank you Mr. Chairman and thank you Mr. Van 
Hollen and other members of the Committee for this opportunity 
to testify. It is tempting to believe that if only we could 
come up with some clever budget rules, fiscal prudence would 
follow. But as you implied Mr. Chairman and Mr. Van Hollen as 
well, it does not work that way. The desire for fiscal 
responsibility must come first then rules can be important in 
strengthening the efforts of those supporting fiscally 
responsible policies.
    Rules can also protect those who are fiscally responsible 
from the special interest that will inevitably oppose them. The 
problem in recent years has not been a lack of rules. It has 
instead been the failure of the Congress to follow rules that 
are already on the books. You said Mr. Chairman the Senate has 
not passed a normal budget in two years so I guess the Budget 
Control Act is now their budget. Last year the House failed to 
pass a budget for the first time in the history of the modern 
budget process and also it is a very rare event for 
appropriations to be finished on time.
    This suggests to me that it may be more productive to think 
about changes in the structures of spending programs and tax 
policies that would allow us to control deficits more easily. 
For example, my colleague Gene Steuerle and I have written on 
how automatic triggers could slow benefit growth to raise 
revenues when Social Security is forecasted to have financial 
problems. Such triggers have been used in many other countries. 
It is possible to structure a broad based low marginal rate tax 
that yields revenues growing more rapidly than GDP. But nothing 
is foolproof. The Congress put an automatic trigger for 
Medicare in the Prescription Drug Bill. It later suspended it 
before it took full effect.
    As Alice emphasized we have to find better ways of 
controlling mandatory spending. Now that is especially true of 
Medicare and in my view it is necessary to alter Medicare so 
that it is subjected to a fixed budget. The premium support 
system suggested by you Mr. Chairman and in the Domenici-Rivlin 
Report would serve that purpose. We can argue about how large 
the Medicare budget should be, but once that is settled we 
would have a lever with which to control it.
    Turning to issues more directly related to the existing 
budget process I will discuss three commonly proposed rules 
changes that I think are bad, two that I would adopt, and one I 
am not so sure of.
    I used to think it would be a very good idea to replace the 
concurrent budget resolution with a joint resolution that would 
be signed into law or vetoed by the president, thus getting 
agreement on the outlines of the budget early in the process. 
But given the difficulty that Congress has faced in recent 
years about passing any budget at all, I guess I now think it 
totally impractical to get agreement with the president in a 
timely fashion.
    I rarely, rarely disagree with Alice but one of her ideas 
that I am not too enthusiastic about is the notion of biennial 
budgeting. As Alice said budgets are extremely complex. They 
are never perfect. I think we should try to improve them every 
year and besides economic and other conditions often change 
unexpectedly and by large amounts.
    Third, the Balanced Budget Amendment is not a good idea. 
The first response of a state when it feels constrained is to 
engage in some outrageous budget gimmickry and over the long 
run states have created a host of independent agencies and off-
budget accounts that make state budgets extremely hard to 
understand. Admittedly, balanced budget provisions exercise 
restraints in a severe recession but that is not a good time to 
have it.
    Two things that should be done, here I very much agree with 
Alice that the budget horizon should be lengthened to deal with 
the long run and the Congress should set an explicit target for 
stabilizing the debt GDP ratio and the date for doing it. The 
Committee for a Responsible Federal Budget has suggested 
techniques for enforcing such a target using a sequester as a 
last resort.
    Second, we badly need a new baseline. The current law 
baseline as CBO must now compute it is useless because so many 
tax cuts and spending increases have passed on a temporary 
basis even though we are essentially certain that they will be 
extended. Most groups suggesting fiscal reforms start with the 
current policy baseline but different groups tend to interpret 
current policy differently. Codifying of current policy version 
which admittedly will not be perfect could help end much 
confusion.
    The last idea that I am not so sure about has often been 
suggested, it is the notion of creating a joint House and 
Senate budget committee. Congress can then start the debate 
with one resolution but I defer with those with legislative 
experience to assess whether this would really be a good idea, 
but I certainly think it should be given considerable thought. 
Thank you Mr. Chairman.
    [The prepared statement of Rudolph G. Penner follows:]

       Prepared Statement of Rudolph G. Penner, Institute Fellow,
                         the Urban Institute\1\

    It is tempting to believe that if only we could come up with some 
clever budget rules, fiscal prudence would follow. Unfortunately, it 
does not work that way. The desire for fiscal responsibility must come 
first. Then rules can be important in strengthening the efforts of 
those supporting fiscally responsible policies. They also can protect 
those who are fiscally responsible from the special interests that will 
inevitably oppose them.
---------------------------------------------------------------------------
    \1\ The views expressed are those of the author and should not be 
attributed to the Urban Institute, its trustees, or its funders.
---------------------------------------------------------------------------
    The problem in recent years has not been a lack of rules. It has 
instead been the failure of the Congress to follow rules that are 
already on the books. The Senate has not passed a normal budget in 2 
years (The caps imposed by the Budget Control Act of 2011 have recently 
been deemed to constitute a budget.) and last year the House failed to 
pass a budget for the first time in the history of the modern budget 
process. It is hard to think up useful rules governing the development 
of a budget resolution when no budget resolution passes the entire 
Congress.
    The Congress almost never passes appropriations on time. That makes 
it very difficult for the bureaucracy to make rational plans.
           rules versus changes in the structure of programs
    The difficulty in following rules and schedules may imply that it 
is more promising to think about changes in the structure of spending 
programs or in the tax structure that would make deficits easier to 
control. It is Social Security and health spending that now create our 
biggest budget challenges. The two areas constitute almost half of 
noninterest spending. Both areas are growing faster than tax revenues.
    Part of the problem is that Social Security, Medicare and Medicaid, 
along with some less important health programs, are open-ended. That is 
to say, they are not subjected to a budget. The law defines an eligible 
population and the benefits to which they are entitled and then we pay 
for everyone who shows up. A lot more people are showing up these days 
as baby boomers retire in larger and larger numbers.
    My colleague Eugene Steuerle and I have written about automatic 
triggers that might be used to make Social Security more secure 
financially.\2\ Upon a finding by the actuary that the program is in 
trouble, the spending and/or tax structure could be altered 
automatically to put the program on a more sustainable course. For 
example, the full retirement age could be increased automatically, 
indexing could be changed to reduce benefit growth, or the tax base 
could be raised. Sweden has designed a system in which the generosity 
of the index applied to new and future retirees is automatically made 
less generous whenever the present value of future revenues falls short 
of the present value of future expenditures.
---------------------------------------------------------------------------
    \2\ Rudolph G. Penner and C. Eugene Steuerle, ``Stabilizing Future 
Fiscal Policy: It's Time to Pull the Trigger,'' an Urban Institute 
Research Report, August 2007.
---------------------------------------------------------------------------
    Steuerle and I also wrote favorably regarding the automatic 
Medicare trigger that was embedded in the Prescription Drug Act. Upon a 
finding that indicated that the system was in financial trouble, the 
president was to issue recommendations that would improve the program's 
financial outlook, and the Congress was supposed to consider the 
recommendations in an expedited manner. The actuary found that the 
system was in trouble; President Bush made some money saving 
recommendations; and then nothing happened. The Congress passed a new 
rule that relieved them of the burden of considering the 
recommendations. The experience shows that nothing is foolproof. The 
Congress can create laws and change laws at any time.
    Medicare can be put on a budget through a premium support approach 
and Medicaid can be controlled through a block grant, as suggested in 
the budget you put forward Mr. Chairman and in the Domenici-Rivlin 
report.\3\ The amount of money that should be put behind these ideas 
can be debated, but once the debate is resolved Congress has a more 
direct way of controlling total expenditures.
---------------------------------------------------------------------------
    \3\ Debt Reduction Task Force 2010, ``Restoring America's Future: 
Reviving the Economy, Cutting Spending and Debt, and Creating a Simple 
Pro-Growth Tax System'', Washington, DC, Bipartisan Policy Center.
---------------------------------------------------------------------------
    On the revenue side, a revenue neutral tax reform that broadens the 
tax base and lowers marginal rates can be designed to provide a revenue 
stream that grows faster than GDP in the long run. Such a system was 
designed by a committee that I co-chaired for the National Academies of 
Science and Public Administration.\4\ Admittedly, the revenue growth 
was largely fueled by the elimination of the exclusion from taxable 
income of the cost of employer provided health insurance. The exclusion 
is currently a major drag on revenue growth because of rapidly growing 
health costs. However, we designed our system before health reform 
passed. Now one has to worry that the removal of the exclusion would 
drive many more people into subsidized exchanges.
---------------------------------------------------------------------------
    \4\ Committee on the Fiscal Future of the United States (National 
Academy of Public Administration and National Research Council of the 
National Academy of Sciences, 2010, ``Choosing the Nation's Fiscal 
Future'', Washington, DC, National Academies Press.
---------------------------------------------------------------------------
               proposals for changing the budget process
    There are some proposals for changing the budget process that I 
oppose, some that should be adopted, and others that deserve more 
study.
    A Joint Resolution--It has often been suggested that the Congress 
pass a Joint Budget Resolution that would replace the Concurrent Budget 
Resolution called for in present law. A Joint Resolution is a law that 
would be signed or vetoed by the president. A Concurrent Resolution is 
not a law and is not signed by the president. Proponents of this change 
argue that it would be useful for the president and the Congress to 
agree to a budget early thus avoiding time consuming debates later in 
the year. Because it would have the force of law, the budget resolution 
should be easier to enforce.
    I must confess that I was for a Joint Resolution before I was 
against it. I now believe that it would be impractical to reach an 
agreement between the president and the two houses of Congress early in 
the year. As noted earlier the Congress has had problems reaching an 
agreement itself. Finding an agreement with the president would 
probably involve a protracted bargaining session that would take far 
too much time.
    A few years ago, then Chairman Nussle and Representative Cardin put 
forward a proposal for a Joint Resolution that had a fallback 
provision. If the president and the Congress did not reach agreement 
within a specified time period, the Congress would then revert to a 
Concurrent Resolution. This would be a better approach than not having 
a fallback, but I suspect it would be necessary to revert to a 
Concurrent Resolution almost every year.
    Biennial Budgeting--Many have suggested that the Congress prepare a 
budget only every two years, thus leaving more time for oversight of 
programs. I have never liked this idea. I see budgeting as an iterative 
process in which we are constantly groping for a better allocation of 
resources. It is an extremely complicated process that we never get 
quite right and it useful to return to the problem at least once a 
year. I would say that even if conditions remained constant, but they 
don't. There tend to be significant unpredicted changes in the economy 
each year and budget projections can vary dramatically. One might 
diminish the problem by relying more on supplementals, but 
supplementals tend to be hard to discipline. Besides, what if political 
conditions suddenly favored some budget consolidation, but it happened 
in an off year. One might miss an important opportunity.
    A Balanced Budget Amendment--Forty nine states have laws or 
constitutional provisions that favor a balanced budget. They vary 
greatly from state to state. Some only require that balanced budgets be 
proposed and some only require that budget for current operations be 
balanced and allow borrowing for capital projects.
    Such laws have greatly distorted state budgets. First, they have 
driven many state activities off budget. There are more than 30,000 
independent agencies and off-budget accounts at the state and local 
level that are not subjected to a balanced budget requirement. Second, 
they promote the use of accounting gimmicks as a first response when 
states get into trouble. For both reasons state budget become very hard 
to understand.
    It is true that governments eventually run out of gimmicks in a 
severe recession and balanced budget rules start to have a real 
restraining effect, but it is not a good time for restraint. Over the 
longer run the main restraint on states comes from the rating agencies 
whose rulings can have a significant impact on the interest rates on 
state debt. In my view, balanced budget rules only have a sporadic 
restraining effect that generally comes at just the wrong time.
    A balanced budget amendment would reduce the ability of the Federal 
government to respond to recessions and other emergencies. If 
exceptions are put in the amendment, they will almost certainly be 
abused. It was not so long ago that the Congress declared the 2000 
census to be an emergency, even though we knew that we had to have one 
since 1789.
    Lengthening the Budget Time Horizon--The Committee for a 
Responsible Federal Budget has proposed a series of process changes 
that would take a longer term view of the budget.\5\ Most important the 
Congress would set a target at which it would stabilize the debt-GDP 
ratio and announce the year in which the target would be achieved. It 
sets out a number of enforcement mechanisms with an automatic sequester 
as a last resort.
---------------------------------------------------------------------------
    \5\ Committee for a Responsible Federal Budget, Getting Back in the 
Black, November 2010.
---------------------------------------------------------------------------
    Choosing a New Baseline--The current law baseline now used by the 
Congress in budget deliberations has become almost totally useless. The 
problem arises because of Congress' propensity to pass deficit 
increasing measures for short time periods. Consequently, all the Bush 
tax cuts are now scheduled to expire at the end of 2012, including 
those for the middle class; it is assumed the alternative minimum tax 
will soon afflict millions more taxpayers; numerous other tax 
provisions that are routinely renewed every year are assumed to expire; 
and Medicare reimbursements will be cut to the bone. These unrealistic 
assumptions lead to unrealistically rosy deficit projections.
    This is not an easy problem to fix, because there is no such thing 
as a perfect baseline. However, I believe that it would be more 
sensible to have a new baseline that assumed that all temporary tax 
measures are renewed. On the spending side of the baseline, it is now 
assumed that authorizations for programs, such as TANF, highways, etc., 
are automatically renewed when necessary. The most important problem 
with my approach is that it does not take account of instances where 
the Congress truly wants a tax or spending measure to be temporary, but 
this is rare. My proposed baseline has the major advantage that it is 
much better predictor of where policy and deficits are going than the 
current law baseline.
    A Joint Budget Committee--It has often been suggested that the 
House and Senate combine to form a Joint Budget Committee. The same 
resolution would be put before each house of the Congress and even if 
the resolution was successfully amended, the end results should be 
easier to reconcile than if you start with two different resolutions 
from two separate committees.
    I am not absolutely convinced that this proposal is a good idea. I 
would defer to those with actual legislative experience who are in a 
better position to judge, but I do think it worthy of consideration.

    Chairman Ryan. Thank you very much. Dr. Rivlin, when we 
wrote the 1974 Budget Act mandatory spending was 11 percent of 
spending and back in those days it was called backdoor 
spending. It was 11 percent then now it is approaching 60 
percent. You both suggest that we should budget for these, that 
we should put these on budget. How exactly do you think we 
ought to doit? Should we put hard caps with sequesters? What do 
you think is the best way to bring this category, the largest 
category of government on budget? And I will just ask Dr. 
Rivlin and then Dr. Penner.
    Dr. Rivlin. Well first I think it is hard, but a way you 
could go is to have the Congress vote on a long term budget. I 
mean really long like 20, 30 years for those mandatory 
programs, and I believe also for tax expenditures. Those are 
the two big categories that are on automatic pilot and not that 
really dealt with in the budget process. And then you look at 
it periodically, every five years or even oftener and you 
decide what to do. Now you could have some kind of automatic 
enforcement mechanism if you are veering off track, say on 
Medicare, then you could have some kind of sequester. That is 
hard.
    I would really like to have the Congress without a 
sequester or a sort of Damocles. Have an explicit vote on what 
you are going to do about this veering off track when it 
happens and in the case of Medicare if you do have something 
that is a defined contribution plan then at that moment you 
could say costs are going up and it seems to be faster than we 
anticipated and we have got to decide what we are going to do 
about that. Do we raise the cap, et cetera? But you need an 
explicit decision moment on the mandatory programs and these 
tax expenditures in which you review what you thought was going 
to happen, what has happened and what to do about it.
    Chairman Ryan. So Dr. Penner both of you said we should go 
to a defined contribution which is the type of system premium 
support is. We can debate how you do it, growth rates and all 
of those things on Medicare but lock in that growth rate and 
then revisit it to make sure that it is sticking within trend.
    And Dr. Penner you mentioned that the debt-to-GDP ratio 
triggers with some kind of an enforcement mechanism such as a 
sequester behind that. Is that what both of you are basically 
saying? So Medicare's the big problem with respect to drivers 
of our debt. That is the biggest unfunded liability. You are 
saying take an entitlement like this, put it on the kind of 
track you just mentioned and then if you are veering off that 
path then have a backup mechanism to make sure you get back on 
the track.
    Dr. Rivlin. Right. With respect to Medicare if you really 
did premium support you would not be veering off track.
    Chairman Ryan. Right.
    Dr. Rivlin. But for others like Medicaid or tax 
expenditures I mean those are really big and they are 
expenditures and you have to look every once in a while at what 
is happening there and the present process does not give you a 
moment for doing that.
    Chairman Ryan. Dr. Penner?
    Dr. Penner. I just very much agree with everything Alice 
said and if you did indeed have a premium support system for 
Medicare you could vote on the budget every year. I mean other 
countries, Canada, United Kingdom they have fixed budgets for 
their health system. In Canada every hospital has a budget and 
has to live within that. So you can set long run targets and 
you can adjust continually depending on conditions.
    With regard to Social Security it was really not on a 
completely automatic pilot until the mid-1970s. Before that it 
was assumed that benefits would be fixed in money terms and 
that, of course, with growing payroll tax revenues meant that 
the Congress could every now and again increase those benefits 
depending on conditions.
    In the late 60s and early 70s the Congress increased 
benefits enormously and there was a feeling that I believed in 
at the time that the Congress could not discipline itself with 
regard to Social Security. So instead they put it on automatic 
pilot thinking that would save money in the long run. Now I am 
very dubious about that theory. I wish we were back in a system 
where the Congress had more discretion depending on what is 
happening to wages in the economy and all sorts of other things 
to alter these benefits. And you would want to design the 
program so they altered them in a good direction so they were 
not in a position of having to cut. Now with this automatic 
system it becomes sort of symmetrical. Sometimes you would be 
in a position where you should cut them and sometimes maybe 
increase them but the bottom line is that we have not done 
anything at all and we just let the automatic pilot fly on.
    Chairman Ryan. Dr. Rivlin you said something that really 
peaked my interest about the way we organize ourselves here on 
committees and things like this and you have been at this for a 
long time. It is a fairly dysfunctional way: the separation 
between authorizing and appropriation. Are you suggesting that 
we go to more of a streamline system where, say, jurisdiction 
is clean, broken up by budget function or something like that, 
and authorizers also do the appropriating as well? Is that the 
kind of system you are talking about?
    Dr. Rivlin. Exactly. And I am not sure it is a very 
meaningful distinction. But if it is it is done by the same 
people.
    Chairman Ryan. Right, so I remember there was a Dryer 
Commission in 1995, I think, that did this and they said break 
it up by budget functions. Budget Committee sends the numbers 
to the authorizers/appropriators and authorizers have a 
subcommittee, an appropriations subcommittee, so the people who 
are doing the oversight and looking at these programs for the 
long term and short term also do the appropriating. Is the kind 
of system you are talking about?
    Dr. Rivlin. Yes. I thought of it just as there is a Defense 
Committee.
    Chairman Ryan. Yeah.
    Dr. Rivlin. And it spends its time worrying about defense 
strategy and how much money we want to spend for defense and 
its relationship to the Budget Committee as you describe.
    Chairman Ryan. Okay, I am going to get some pretty nasty 
looks from some people here in a minute because I keep going 
down this path.
    Dr. Rivlin. It is not a popular idea.
    Chairman Ryan. No I know it is not. Let me ask you about 
baselining. So Dr. Penner you talk about the base, let's put 
aside the assumptions within the baseline. You know doc fix and 
tax policy. I want to quote Governor Cuomo who called the 
baseline budgeting process in New York a sham and deceptive and 
a contributor to the dysfunctional budget process. Here is his 
quote.
    Who was responsible for setting the growth in the state's 
budget, the answer is shockingly no one. It is dictated by 
hundreds of rates and formulas that are immobilized throughout 
New York State laws that govern different programs, formulas 
that have been built into the law over decades without regard 
to fiscal realities, performance or accountability.
    We face the same problem here in Washington. The 
assumptions of what ought to be in the baseline whenever there 
is a reduction in the growth of a program like mandatory it is 
considered a cut. When in real terms it actually is an 
increase. Should we go after that? Should we revisit the actual 
composition of a baseline which is really the definition of 
autopilot?
    Dr. Penner. I think that would be very useful. I mean what 
is going on now is that we have a discriminatory budget 
structure. We look at discretionary and mandatory quite 
separately and when you cut a discretionary program it is 
really not cut usually in real terms. Whereas as you said 
Medicare can be growing at an extremely rapid rate and any 
slowdown in the growth is called a cut and the same tends to be 
true of Social Security.
    So I think that would be very useful. I think it would be 
helped if, in fact, we had fixed targets for Medicare that 
would help control it. Another way of helping I think would be 
a change in the way we display the budget, where every year you 
have a kind of source and uses of funds and then you can see 
very clearly how much of your tax revenues and boring goes to 
Medicare, how much it has increased or to Medicaid and that 
would be very helpful as well.
    Chairman Ryan. Yes, Doctor?
    Dr. Rivlin. I think Rudy goes too far. You need a baseline. 
If you are going to sit down and look at the budget you need to 
say where do we start? And in terms of Medicare and Social 
Security for instance it does not make any sense to say we 
start with what we are spending this year because next year 
there are going to be more old people and 10 years from now 
there are going to be a lot more old people. So it makes a lot 
of sense to compute what would be the spending given the number 
of claimants that we expect.
    Chairman Ryan. A per capita adjustment in the baseline. I 
heard.
    Dr. Rivlin. Well not necessarily. I am saying that with 
respect to entitlement programs, programs that depend on the 
characteristic of the beneficiaries you really need to know how 
many beneficiaries there are and so you need to adjust for 
that.
    With respect to discretionary spending it is essentially 
arbitrary. You could decide we are going to start with this 
year's budget or you could decide a lot of these programs will 
have higher cost because of inflation. Now we are not in an 
inflationary period now but suppose you were and that they are 
going to need to provide the same service, they are going to 
need more money and you could start there. It does not matter 
so long as you decide and everybody understands what it is. But 
you do need a baseline.
    Dr. Penner. Well I was not implying Mr. Chairman that we 
should not compute the kinds of things that Alice says we 
should compute. That is to say what are the spending 
implications of the current law? But I am suggesting additional 
displays which make it clearer than in our present system just 
how much that is costing.
    Chairman Ryan. Right. Thank you. Mr. Van Hollen.
    Mr. Van Hollen. Thank you Mr. Chairman. Let me thank again 
the witnesses for their testimony. As I listen to your 
testimony it sort of led me back to some of the comments that 
you made early on, the chairman and I made in which Dr. Rivlin 
ends her written testimony on essentially in big bold letters 
in the sentence. ``Above all recognize that our Constitution 
requires a willingness to compromise'' because we can invent 
all the budget rules that we want but if at the end of the day 
there is not a willingness to compromise especially in the area 
of divided government it becomes a very difficult.
    And Dr. Penner as I look at your testimony and I have to 
say I agree with your review of some of the budget processes. 
Joint resolution no, I think the key points there, biennial 
budgeting. Frankly I am kind of agnostic on that. I am willing 
to listen to people.
    Balance budget amendment, you pointed out that there are a 
lot of gimmicks that are played with that. Ultimately with that 
as well it is a matter of enforcement. I mean I do not think 
anyone should kid themselves thinking if there was a balanced 
budget that it would not be subject to the same kind of game 
plan you see at the state level. But also ultimately who is 
going to enforce it, the courts? They are not going to get in 
the middle of a big battle over that.
    Lengthening the budget time horizon? I think all of us in 
this Committee realize that the time structure is designed in a 
way that you do not get very much credit for politically tough 
decisions because you only look in the 10 year window while a 
lot of changes take place over a period of time, whether it is 
on the revenue side or cutting spending. So I think that is 
something we should look at.
    Baseline, I am happy to engage in a conversation on 
baseline, too. But I think if you look at both your testimony 
you would acknowledge, and this is my point, that really the 
recommendations you are making for addressing this issue are 
really beyond the purview of budget process. You are really 
making decisions with respect to fundamental policy choices.
    For example, when you set up a sequester mechanism, if we 
were to do that, you have to decide now. What subject to 
sequester? Are you going to include revenue when you miss your 
debt to GDP target, or deficit to GDP target? All those 
questions come into play right up front. We have sort of all 
discovered that as you go through these different exercises. 
Dr. Penner, you mentioned the Rivlin-Domenici Commission 
recommendation regarding premium support. You did not mention 
that their overall approach is sort of 50 percent on the 
revenue side 50 percent on the cut side, and that other 
bipartisan groups that have looked at these challenges have 
come up with similar frameworks. You mentioned one of the tax 
approaches broadening the base that was discussed in choosing 
the nation's fiscal future. Great piece of work, but as you 
know you outlined four different fiscal scenarios here and had 
a lot of different proposals with respect to how you raise 
revenue including raising payroll taxes, right?
    Dr. Penner. That is right.
    Mr. Van Hollen. Okay, so the point here is that biennial 
budgeting, some of this little stuff we can work around the 
edges but the fundamental crunch comes with making the 
political choices. And I just throw that question, is that not 
the case?
    Dr. Rivlin. Absolutely.
    Dr. Penner. No disagreement here.
    Dr. Rivlin. If you are criticizing us for not making your 
job easy, you are right.
    Mr. Van Hollen. I am not. I just I think that we can and I 
am willing to engage in you know process and discussion and 
looking into how we can change this as I have said. I have 
introduced legislation cosponsored by a number of our 
colleagues with respect to expedited rescission. It can I think 
make a little difference around the margins potentially. But 
with respect to the fundamental issues every one of the 
proposals that you have put forward, the two of you, with 
respect to really changing the direction is not really a budget 
process proposal. It presumes fundamental political choices 
about how we are going to get there I believe.
    Dr. Rivlin. I think that is right, if I may chime back in, 
but there are things that you can do to make it easier to 
grapple with the hard choices and right now the fact that 
entitlements and tax expenditures are sort of outside your 
purview and you are spending enormous amounts of time on a 
small part of the budget. That is silly and you can fix that.
    Mr. Van Hollen. Well I think there are things you can do to 
focus more attention and discussion on as you said tax 
expenditures. The other thing is as someone who is on temporary 
leave from the Ways and Means Committee I am happy to vote now 
for all your proposals with respect to my other colleagues on 
other committees.
    But I do think that all of these issues should be subject 
to more scrutiny and I think there are things we can do as you 
say to make it easier. I am just making the point that you are 
making too, which is there is no budget process magic bullet 
here, and the point I made in my testimony, when you look at 
the different groups that have grappled with it, it is not as 
if this has not been part of our national conversation for the 
last 18 months in terms of looking at these fundamental 
choices. I mean we have Dr. Rivlin and the Rivlin-Domenici 
Commission. Dr. Penner you were part of the National Academy of 
Sciences study and grappled with these exact issues. Simpson-
Bowles did, Gang of Six did and my point is if at the end of 
the day we take Dr. Rivlin's advice, and what I think Dr. 
Penner's advice, which is that you have got to make these tough 
political decisions and be subject to compromise.
    My only point is we now look to the bipartisan groups that 
have grappled with this and what kind of compromises did they 
frame? Again not with respect to every particular piece of it, 
people will differ but in terms of the fundamental approach. 
There are three clear products that demonstrate and reflect 
what happens when people of good will and good faith get 
together and grapple with these questions. Would you agree with 
that, Dr. Rivlin?
    Dr. Rivlin. I would. I mean there are differences obviously 
but the basic arithmetic of the problem drives you to similar 
solutions.
    Mr. Van Hollen. Dr. Penner?
    Dr. Penner. Yes, the problem now is not a lack of options. 
We have literally dozens of them as you say from various 
committees. The problem is a matter of compromising among those 
options.
    Mr. Van Hollen. Thank you.
    Chairman Ryan. It is Mrs. Black.
    Mrs. Black. Thank you Mr. Chairman and I want to thank both 
the witnesses for your very enlightening remarks that you did 
make. I want to go to the regulatory increases and spending 
that piece. In formulating the baseline CBO makes so-called 
technical adjustments to account for regulatory policies that 
would change direct spending. Do you think that this process is 
significantly transparent to Congress so that we are made fully 
aware of the spending policy changes that are being made 
administratively without further congressional enactment? Ms. 
Rivlin.
    Dr. Rivlin. I do not really know. I mean I would talk that 
through with Dr. Elmendorf but I assume they are trying as hard 
as they can to make it as clear as possible. If there are other 
things you need to understand, ask.
    Dr. Penner. They do report on a regular basis in terms of 
their estimate, both of the private spending implications and 
public spending implications, the regulatory changes. It is 
pretty dense stuff I will admit, but I think as Alice said if 
it is not clear enough you could work with CBO to change the 
format.
    Mrs. Black. Let me go to another subject on the CBO versus 
the Joint Tax Committee or Joint Committee on Taxation. 
Responsibility for estimating the budgetary effect of 
legislation is divided between CBO and JCT with JCT responsible 
for providing estimates from most revenue measures while CBO is 
responsible for all the legislative. From your experience at 
CBO what challenges do you think that this arrangement poses or 
are there challenges there?
    Dr. Rivlin. Well I was the first director so I inherited 
this division of responsibility and as we staffed up in our tax 
division we tried to figure out how do we do this best? But my 
experience was pretty good. I think it worked reasonably well. 
The staff of the Joint Tax Committee is very competent and they 
have been doing this for a long time and there was a lot of 
back and forth between the two staffs and I do not remember it 
being especially difficult.
    Dr. Penner. I would agree. The division of responsibilities 
was actually codified on my watch and made clear in the 
legislation. I did not object to that. I thought it was a good 
idea to clarify these things. I cannot say that I ever 
experienced real difficulties because of this division of 
responsibilities. It worked very well. They always cooperated 
very well with us. Sometimes we had disagreements but that was 
a rare event.
    Mrs. Black. Well I appreciate both your testimony and also 
in the questioning because we certainly want to find things 
that work well and then fine tune the things that do not. Thank 
you very much. Mr. Chairman I yield back my time.
    Chairman Ryan. Mr. Blumenauer.
    Mr. Blumenauer. Thank you Mr. Chairman. I must say I have 
appreciated the food for thought that you are offering up. Just 
sort of take a moment to exhale amongst some of the activities 
around here. I am looking at some big picture items. I 
particularly appreciate your putting before us the potential of 
changing the dysfunctional congressional structure itself. I 
was taken by your proposal to sort of merge authorizing and 
appropriating. I think you were right 40 years ago and I think, 
certainly, you are correct today. It is interesting how 
authorizers increasingly are attempting to sidestep 
appropriators and with mixed success and how our friends in the 
Appropriations Committee routinely weigh into the policymaking. 
I am hopeful that there may be an opportunity for us at some 
point to step back and look at this because ultimately this is 
a notion of broader congressional dysfunction, the size of 
committees and the inability to actually get things done. You 
are suggesting, not only I think, fiscal restraint but an 
opportunity to exercise what policymakers should do which is 
actually policy make.
    Dr. Penner, I appreciate your reference to not falling 
victim to gimmicks. I note the late Senator Hatfield recently 
passed away and one who stood tall against the so-called 
Balanced Budget Amendment, which is something sidestepping our 
responsibility. And I am particularly interested in the notion 
of our being on autopilot with the mandatory spending with tax 
expenditures.
    I am thinking about ways that we might be able to break the 
cycle and I would like to just put one item before you. Dr. 
Rivlin, we talked briefly before the hearing about the 
infrastructure issue. An area that is not given much attention 
sadly is the infrastructure deficit. We have user fees that 
have gotten all out of cycle that have required trust funds to 
be propped up by general funds and these are areas, 
particularly the Highway Trust Fund, where we are talking about 
long term investments. Do you think that there is some approach 
that would involve a capital budget in trying to zero in 
separately on the user fees that support some of the 
infrastructure that could maybe help get out of the budget 
conundrum and be able to lead towards better policymaking?
    Dr. Rivlin. Well I think they are two separate issues. One 
is how do you get more investment in infrastructure? And I 
think everybody thinks we need that and how do you fund it in a 
way that is more conducive to efficiency? And you and I have 
talked about road use pricing and congestion fees and that sort 
of thing. And I think more shifting to user fees in 
infrastructure is a good thing.
    However, I think of that as a separate conversation. I do 
not think that a capital budget for the federal government 
would be particularly helpful and for a couple of reasons. 
Unlike states and cities the federal government actually does 
not do much direct investing in capital goods except in the 
military. Most of the investment in what you would really think 
of as capital goods, battleships, whatever; we do not use them 
anymore; aircraft carriers or our military hardware.
    On the domestic side it is mostly grants to state and local 
governments, a grants from the Highway Trust Fund or whatever, 
matching grants. That makes it much more difficult to have them 
in the capital budget but the more important thing is 
immediately everybody who is conscious of not just the 
infrastructure deficit but the skills deficit and other 
deficits will say, ``But wait a minute infrastructure is an 
investment but so is investment in the skills of the 
workforce.'' And you get an ever expanding definition of what 
is investment which leads me to believe it is not a terribly 
useful concept at the Federal level.
    Dr. Penner. I agree completely. You talk about budget 
gimmickry; if the presumption is that it is okay to borrow to 
finance capital, whereas you should pay for current 
expenditures up front then I think experiences show on that 
almost everything gets defined as being capital. In the case of 
the New York City bankruptcy long ago they went so far as to 
call janitor salaries capital because they worked on buildings 
after all.
    So it is just very hard to control that and also there are 
all kinds of measurement problems. The fact that you do not 
really know what you get from a grant. The way most of the 
highway grants are constructed, they do not really provide much 
incentive to states to actually build highways.
    And then of course you have the much more difficult 
measurement problems if you consider education to be capital or 
research and development to be capital. And if you do not, then 
you have a capital budget then you are discriminating against 
those things.
    Chairman Ryan. Thank you. Mr. Stutzman.
    Mr. Stutzman. Thank you Mr. Chairman and thank you for 
being here today. I want to touch a little bit on biennial 
budgeting and Dr. Rivlin your comments you mention supporting 
the concept. I am a big fan of biennial budgeting. I come from 
the State of Indiana.
    Dr. Rivlin. I am a Hoosier, too.
    Mr. Stutzman. That is right; from Bloomington. And we have 
biennial budgeting there and our Governor Mitch Daniels, former 
OMB director, has done a fantastic job and we have a balanced 
budget in Indiana. I will say this, I think gimmicks can always 
happen whether you have a balanced budget amendment, whether 
you have a biennial budget. It is up to decision makers to make 
wise decisions and it does not matter what parameters we put 
around ourselves, anybody can still go around those rules.
    I would like, if you could Dr. Rivlin, to kind of give us 
an idea what a federal biennial budget could look like? Could 
work like? And also what some of the benefits and maybe some of 
the downsides are?
    Dr. Rivlin. I think the main benefit is that it saves 
everybody time. The Congress does not have to do this every 
year, it can do other things in the other year, and especially 
the Executive Branch which spends an enormous amount of time 
working on the budget every year and presenting it to Congress 
and appearing before these unnecessarily duplicative committees 
to defend the budget and chews up a lot of time when they ought 
to be running their programs. So I think that is the main 
benefit and there are always problems. The Indiana Legislature 
is notorious for holding the clock and running longer than they 
are allowed to and all those things. And that would maybe 
happen here, but the other thing is Rudy is right that 
conditions change and if you have a hurricane or something you 
have to deal with it, and you have to deal with that now. You 
have to do that, but I think the saving that you would get and 
the ability to have a longer planning horizon.
    Members of the Appropriations Committee with whom I have 
discussed this over the years have always thought they had more 
control if they appropriated every year. I think they would 
have more control if they did not because you cannot change 
things. It gets back to incremental budgeting. You cannot 
change things very much if the fiscal year is about to start. 
And you can change them more if you have a little longer 
planning horizon.
    Mr. Stutzman. Go ahead.
    Dr. Penner. I am against them mainly because changing 
conditions. I think if you had a biennial system you would have 
enormous number of supplementals and supplementals are 
extremely difficult to discipline.
    Mr. Stutzman. In Indiana we can always open the budget back 
up in the off year and if there is a situation that needs to be 
addressed the governor can always call us back and we can 
address that issue in particular. And I think if we continue to 
keep the earmark controls, the self-will of making sure that we 
do not spend more money than what is necessary in a particular 
situation whether we are dealing with emergency spending on a 
hurricane or any natural disasters, any of those things. We can 
always come back and address those particular issues and I 
think oversight is needed more today than ever before in our 
budgeting process and that is obviously why we are having this 
hearing. Dr. Rivlin, could you touch a little bit on a balance 
budget amendment and your position on a balance budget 
amendment?
    Dr. Rivlin. I am against it. The difference between a state 
and the federal government is the State of Indiana basically 
does not have to worry about the impact of its budget on the 
national economy; the federal government does. And so it is not 
always desirable to have balance in the Federal budget. Now we 
should balance over the cycle and when you start thinking about 
writing a balanced budget amendment then you start writing in 
lots of exceptions. Suppose a war starts in the middle of the 
year. Suppose we have a sharp recession and you get so many 
exceptions written into the law. My colleague Charlie Schultz 
said all of a sudden you are writing algebra into the 
Constitution and I think that is undesirable. That you should 
simply try to do the best you can to have a sensible fiscal 
policy and that means that you balance over the cycle and you 
have a sustainable budget going forward, but I would not put it 
in the Constitution.
    Chairman Ryan. Thank you. Mr. Pascrell.
    Mr. Pascrell. Mr. Chairman thank you for putting us 
together today and I found something that you and I do agree 
on, and I felt I should make that announcement.
    Chairman Ryan. Take note.
    Mr. Pascrell. I think in your discussion and your remarks 
about real growth, you used the term in the budget which are 
marbleized, cemented, whatever term you want to use. And I 
think that may be an important area for compromise and 
resolution. I think we ought to take a look at that very 
seriously and I think there is a lot of money involved that we 
can debate and come to some kind of agreement. So I would not 
make that an addendum to what you said. I think it is very 
important and this is an area I think we should take a look.
    Chairman Ryan. I will make sure I quote more Democrats that 
I agree with, like Governor Cuomo in the future to get the 
consensus, so thank you.
    Mr. Pascrell. Well that helped. I would also take a look at 
something folks on both sides of the aisle have talked about 
and distinguish between the mandatory part of the budget and 
discretionary parts of the budget. If you take a look at, and 
we have two very prominent panelists today, that perhaps 
looking at a longer term budget for the mandatory and a yearly 
budget in terms of discretionary. So what if we had a two-year 
budget? And I think it is utter nonsense. We can have a 
skeleton, we can have protocol, we can have this model of a 10-
year budget, but you saw what happened the last time we did 
this and it did not work out. And we were moved from 2000 to 
2008 and 2009, and you go back at the prognostications about 
what would be produced, what would not, and then what really 
happened. So there is a real danger here.
    Our side of the aisle took tremendous hits last year 
because we certainly did not pass a budget. It does not look 
like it is going to be happening this year either and it is 
beyond our control almost because on the other end of the 
Capitol is an arcane society that we need 60 votes to get 
something to vote on.
    Chairman Ryan. We keep agreeing with each other. There is 
something happening here.
    Mr. Pascrell. It will get better or maybe not. So I would 
like to ask a question Ms. Rivlin. Let me give you an example 
of that on health care, mild subject for a Wednesday morning. I 
want to ask about the delivery system reforms that were 
included in the Health Care Reform Act. How do we save Medicare 
money? In February, before the Ways and Means Committee, I 
asked a question to the CMS actuaries, Rick Foster, I think his 
name was, and this is what he said to me: He testified that he 
did, indeed, believe that the reforms in health care had the 
potential to create great savings in Medicare. We are talking 
about process, here. I like results. We are talking about 
process today and how we get to those results.
    Unfortunately, we cannot score the actual savings very well 
because these reforms are innovative ideas, we do not really 
know how they are going to turn out. There is no data to 
project the savings, so we have to give it a few years before 
we find out. Ms. Rivlin, do you agree with this assessment? In 
your estimation, is this correct?
    Dr. Rivlin. Yes. I do. I think that many of the delivery 
system reforms and mechanisms for getting delivery system 
reforms that are being talked about now and that are actually 
embedded in the Affordable Care Act are very good ones, very 
promising ones. It is likely that we will get some serious 
improvement in the cost-effectiveness of health care, but the 
evidence is too weak for it to be counted on.
    Mr. Pascrell. But does it not reflect, really, the weakness 
of the scoring system of legislation, that we ask CBO to 
reflect upon? This is both sides of the aisle, I think, are 
involved in this. I really think that when you are talking 
about examining the process, by which we put the budget 
forward, that scoring legislation needs to be reviewed and 
perhaps changed, do you think?
    Dr. Rivlin. No, I do not. Let me defend my former 
colleagues at the CBO. I think you must have scoring for the 
reasons we have been talking about that you need to know to a 
reasonable degree of certainty what something will cost or how 
much it will save. And the CBO does the best it can to rely on 
hard evidence and if there were, for example, a set of 
experiments that said a particular delivery system changed, 
what these results, and you could measure them, CBO would use 
that information, but there are not. And once you loosen the 
rules and say it is anybody's guess, then you have lost the 
usefulness of having a scorekeeper.
    Mr. Pascrell. Mr. Chairman, would you not say, and this is 
my final question if I may, if these experiments that I am 
referring to in the Health Care Act, which you are not 
particularly thrilled about, but if these experiments created a 
substantial service, and we could be talking about anything, 
any legislation, now; I am talking about Healthcare. Does this 
mean Medicare's solvency would have to be reevaluated? That is 
the point that I am trying to make.
    Chairman Ryan. We are out of time, but the same debate 
occurs on the tax side of the ledger, which is do we get 
reality based scoring based on dynamic changes in personal 
behavior because of changes in the law? So, can we do things 
that create preventative medicine, disease management, which 
will ultimately save money? Well, they do not know how to 
quantify that at CBO right now. Maybe we will learn how to do 
that. Do we increase economic growth and therefore revenues of 
the federal government by lowering tax rates and broadening the 
tax base? We think so, based on evidence, but they do not 
quantify it that way right now. Perhaps, we ought to try having 
these models speculate on what they think the world might be 
under these policies, then we use a static analysis and track 
the measurement of those over time and then see which one 
proves to be more close to reality and then go with that. So, 
Dr. Price.
    Mr. Price. Thank you, Mr. Chairman, and I want to thank the 
panelists for their service and for their testimony. And I do 
not want to get too sidetracked here, but I have to pick up on 
this health care issue because as a physician, I could tell you 
that I adamantly oppose the quote reforms that were put in 
place. And CBO was pretty doggone clear about where the savings 
were coming from, at least $500 billion of it, $150 billion, 
essentially, for decreasing the choices for seniors in the 
Medicare Advantage Program, and $350 billion through the 
opportunity to have a 15 member panel of individuals here in 
Washington to deny care to seniors if they did not meet the 
bottom line. So, the CBO was pretty doggone clear about where 
that money was coming from and it is the denial of care for 
seniors.
    I am in my fourth term here and have been frustrated from 
the very moment I arrived, that all of the inertia here in 
Washington is to spend money. So when people say that nobody 
wants to talk about process, that it is not an attractive issue 
at all, but process in our spending drives policy. And so I 
want to commend the chairman for calling this hearing, because 
I think it is incredibly important.
    Dr. Rivlin, you said something that I think is absolutely 
to the point, and that is that we need to make it, ``Easier to 
grapple with the hard choices.'' And we have all touched on, I 
think, the frustration that we have with CBO and the scoring 
mechanism that appears to be less dynamic or realistic in 
reflecting the policies that have already been put in place. I 
think we basically agree that is a challenge or a problem. What 
are the solutions that could be put in place to allow the CBO 
to have greater capability to reflect the dynamism of the 
policies that are put in place? Dr. Rivlin?
    Dr. Rivlin. I think they are trying as hard as they can and 
they produce analyses, for example, of the impact of tax cuts, 
and there is some evidence, certainly, that reducing some kinds 
of taxes contributes to economic growth, but there is also 
evidence that a higher deficit is bad for economic growth, and 
if you are getting both, they sort of cancel each other out.
    Mr. Price. And I want to talk about the policy side. I am 
truly interested in the process, because CBO, they are good 
folks that are working over there. They are trying as hard as 
they can under the rules that they have, but sometimes, 
oftentimes, they are tens or hundreds of billions of dollars 
off in what actually has occurred, if you go back in history. 
That is not their fault. I would suggest it is the fault of the 
process. So, help me understand how we can improve the process, 
Dr. Penner, if you will maybe.
    Dr. Penner. Well, let me make a very general point about 
all of this, the last two interchanges. All of these estimates 
are very uncertain as you are implying. We do not have good 
data, we do not have good models or maybe we have too many 
models. And the Congress does not deal well with uncertainty. I 
am always amazed how the 10 year baseline projections are taken 
as so we know with 100 percent certainty that we are going to 
go right along there and the whole deliberations over the 
budgets assume that. I think other countries do a better job of 
dealing with uncertainty and I think the thing to do is to 
build mechanisms into programs, I would call them trigger 
mechanism, so that if things do not turn out the way you 
expect, especially if something costs much more than you 
expect, that there would be an automatic mechanism for slowing 
down the spending in that kind of program. But we will never 
eliminate the problem of huge uncertainty, especially in the 
medical area.
    Mr. Price. So an automatic sequestering in any program?
    Dr. Penner. Well, there need not be a sequester. I mean, 
most countries apply these mechanisms to Social Security where 
you might have an automatic, very gradual increase for the 
retirement age, for example, if the system goes astray. Some 
would like to do it on the tax side, maybe with an automatic 
increase in the tax base. Again, things that would bring the 
system into line.
    Mr. Price. Dr. Rivlin? Any comments on the dynamism?
    Dr. Rivlin. Well, I agree with Rudy. There is a great deal 
of uncertainty and people who are very strong proponents of a 
particular thing, whether it is a tax cut or a delivery system 
change in health care, always believe that it is going to work. 
And the evidence is not as strong as they often think it is. I 
mean, for example, in the middle of the 1990s, we raised taxes 
at the top bracket. Any modeler would have said that is going 
to cut into economic growth and we got a burst of economic 
growth. So it is very hard to make sure that you have got these 
dynamic things right.
    Mr. Price. Thank you. Thank you, Mr. Chairman.
    Chairman Ryan. Mr. Lankford?
    Mr. Lankford. Thank you, and thank you for being here as 
well. In your testimony the dynamic part of it I am with you. 
It is difficult because I have seen multiple models. I just 
left a meeting before where one of the members was saying if we 
change the particulate levels a little bit, again, then it will 
save $350 billion next year in health care costs. It is just 
one of those things that is very interesting. How do you 
determine that? Just a raw guess in the middle of it, but being 
able to find some way to have a trigger, some way to be able to 
manage that.
    Let me bounce a couple questions off of you. Let's be 
optimistic that we can both balance our budget and get on top 
of it. And I am a proponent of a balanced budget amendment, I 
understand where your coming from on that, I can see both sides 
on it. I would love to see Congress be responsible and be able 
to do it on their own, I just do not see a tremendous level of 
long-term responsibility year after year. And just maintaining 
that and having a parent in the legislative room, I think, is 
an asset. Just saying, I know you are going to do the 
responsible thing because you are going to do the responsible 
thing.
    Dr. Rivlin. Well, I think both of us are for the Congress 
forcing itself to do the responsible thing. I am only saying 
that I would not write it into the Constitution.
    Mr. Lankford. I understand that. Optimistically out there, 
is there a benefit to having a rainy day fund, for a disaster 
mentality, something that is set aside and that is funded, or 
does that just mandate every year? You are going to always 
spend that because you will make up a disaster because you have 
got the money set aside?
    Dr. Rivlin. No, I think that disaster funding should be 
done on the basis of taking as careful a look as you can at the 
average cost of disasters, and pre-funding it and if you run 
out of money then that is another problem. Many disasters, the 
average frequency, over several years, is pretty predictable.
    Dr. Penner. I agree with that. We should have some sort of 
allocation for emergencies of that sort.
    Mr. Lankford. We just talked about supplementals and I 
understand that supplementals will always be an issue. I think 
it is just one of those things that we can assume, we are going 
to have a hurricane, a set of tornadoes, or an earthquake 
pretty reliably at any given point based on our history on it.
    Let me ask you as well, some of our committee structures, 
and some of your statements I really appreciate on how the 
committee structure itself seems to slow down oversight and 
managing budget, dealing with appropriations, authorizations, 
the tax, the budget, all of those things, as well as an 
oversight. If you want to have oversight over an agency, it is 
almost impossible to have real oversight over an agency, 
because the oversight is spread out over multiple different 
committees because our agencies are not aligned up with our 
committee structure. Whether that is by design, or whether that 
is by accident, it is working still the same. It is very 
difficult to do an oversight.
    Broadening out from the budget and tax areas, is there a 
need to do a broad-scale reform of how we do committees in the 
House to align it better with our agencies and also to align it 
better with an efficient budget process?
    Dr. Rivlin. I think so. The testimony I referred to was, I 
believe, and then this is back when the chairman was in 
diapers, it was, I believe, it was before a select committee on 
committees. This was a moment at which the Congress decided it 
should reform its committee structure and did not end up doing 
it, or only partially, I guess. But, yes, I think it is time to 
revamp the whole thing.
    Mr. Lankford. Okay.
    Dr. Penner. I must confess, when I was CBO director, there 
was nothing I feared more than to get into an argument about 
committee jurisdiction. Certainly, there is a logical case. If 
you want a really radical view, the budget process was invented 
because we have this peculiar custom of making spending and tax 
decisions in separate committees. Before the Civil War, Ways 
and Means was Ways and Means. They did both spending and taxes 
at the same time. And most countries do that, most countries 
have a kind of super, let's call it a Budget Committee, that 
makes appropriation decisions and tax decisions all at the same 
time. And I think ultimately, that is where you should go, but 
there are, as Alice suggests, more modest ways of better 
aligning the committee structure with departments and programs.
    Mr. Lankford. That is my other question. Is there a way to 
be able to get a year ahead in our planning process, going back 
to 1920 and before, is there a way to be able to get to a 
number? That when the president presents a number, the House, 
the Senate and the president have already agreed on what that 
top line number is and we are really arguing about the details 
within and how to shuffle that. So that the president does not 
submit one number, the Senate does another, the House does a 
number, and this drags all the way out and creates tremendous 
uncertainty until the fiscal year and then we bump up against 
it.
    Dr. Rivlin. That really is the concept of the Joint Budget 
Resolution signed by the president, which Rudy once favored and 
now does not. I think only because he thinks it would not 
happen. But, that is the basic idea that everybody agrees on 
the top line even by functions and then works within it. Sounds 
like a very good idea if you could do it.
    Mr. Lankford. It is just trying to get that done.
    Dr. Penner. The first step is to do appropriations on time, 
I think. I think it really adds to the inefficiency of 
government when bureaucrats do not know what they are going to 
have to spend until after the fiscal year has already begun.
    Mr. Lankford. I would completely agree with that. I yield 
back.
    Chairman Ryan. Thank you. I, too, was for it before I was 
against it, as well. Mr. McClintock?
    Mr. McClintock. Thank you, Mr. Chairman. I would like to 
just test out a theory that I have evolved over the last few 
years since I arrived here at the Congress, and that is that we 
have a parliamentary system that has evolved over centuries. 
And it has become very good at distilling many diverse 
viewpoints into a common direction for a nation. Each House 
reflecting different elements of decision making and 
independently arrives at a decision. The differences between 
those two Houses are then resolved through a conference 
process, which itself has become very good at resolving 
differences between the two Houses, when it is used properly, 
not to draft new legislation, but simply to identify the 
differences. If the House says $5 billion and the Senate says 
$10 billion, the only question is where between $5 billion and 
$10 billion do we end up? We do not go under $5 billion, we do 
not go over $10 billion. When it is used in that way, it seems 
to me the system works very well. The problem is it is not 
being used. We have not passed a budget in the Senate in nearly 
three years. The House failed to fulfill that responsibility 
last year. How much of this is failure of process and how much 
of it is a failure to follow process?
    Dr. Rivlin. Well, I think very much of it is a failure to 
follow the process, and there have been times in the history of 
the budget process when it worked quite well.
    Mr. McClintock. When it was followed.
    Dr. Rivlin. When it was followed, yes, absolutely.
    Mr. McClintock. Well, the question I come to is are we 
running a file of the old maxim, if it is not broke, do not try 
and fix it?
    Dr. Rivlin. Well, I think that are many elements of the 
current process which make it hard to get done on time because 
of the complexity and the number of committees and so forth.
    Mr. McClintock. I did not say it was not hard; it is really 
hard work. But, when it is followed, it seems to produce 
reasonably good work products. But what I am watching is the 
system has completely disintegrated. I mean, the super 
committee, this constitutional abomination, which sidelines 523 
representatives of the people in favor of a closed process that 
short circuits all of the independent mechanisms that were 
built into a bicameral, legislative process.
    Dr. Rivlin. I could not agree more. It is the failure of 
the Congress to follow its own rules to get the job done that 
has lead us to this point.
    Mr. McClintock. So, all of this discussion about changing 
the process is simply averting the responsibility that we all 
have to follow that process.
    Dr. Penner. Well, I think you are right on that the major 
problem is not following the rules that we have, but that does 
not mean that we should not work on the rules some. I think one 
of the problems with the budget process, as Alice implied, is 
that to try to close various loopholes in the rules, we have 
added more and more rules and the whole process has become as 
complicated as our tax system, almost. And it is beyond the 
understanding of 99.9 percent of all Americans, at this point.
    Mr. McClintock. But all of the accretions we built onto 
that, but the basic system, which works well, is known to every 
reasonably well-educated school child.
    Dr. Penner. Well, I am not so sure of that.
    Mr. McClintock. The problem is we are not following it. Let 
me go on because my time is brief. The balanced budget 
amendment: Dr. Rivlin, you say you oppose it because it is a 
fool's errand to try to look hundreds of years in the future 
and anticipate the conditions that a future Congress might 
face. Was that essentially what you were saying with the 
comment about it requires us to build algebra into the 
Constitution?
    Dr. Rivlin. No, it was that you do not always want to 
balance the budget. And there are certainly times when you are 
falling into a recession, when a requirement to balance the 
budget would require you, at that moment, to cut spending and 
raise taxes, and that is exactly the wrong thing to do. For 
that reason, the balanced budget amendments that make sense 
write all these exceptions in.
    Mr. McClintock. Why not just say no more borrowing, except 
by extraordinary majority vote of the Congress, say three-
fourths of the Congress, for a single object or work? Future 
Congress by three quarters vote is going to be able to 
recognize a real emergency, as opposed to the simple urge just 
to keep spending. And a single object or work means that you 
have to identify what it is that you are borrowing for by that 
extraordinary majority.
    Dr. Rivlin. Well, maybe, I just think there are better ways 
of getting fiscal responsibility than writing it into the 
Constitution. And super majorities give an awful lot of 
bargaining power to people who are on the margin of being part 
of the super majority.
    Mr. McClintock. Well, they require a certainty of action 
the higher that super majority has expended.
    Dr. Rivlin. Well yes, but you also see people bargaining, 
``I will join the super majority if you will build a bridge in 
my district.'' That is not what you want to encourage.
    Chairman Ryan. Thank you, let me just follow with one final 
questions. Dr. Penner, I understand your views of biennial, and 
it is a fairly common criticism to the idea. Both of you talked 
about the need to pre-fund emergencies on sort of a rolling 
average basis. If Congress could come up with a suitable system 
to define and more or less pre-fund emergencies so that the 
supplemental process is as airtight as it can get, would that 
alleviate your concerns on going towards a biennial system? If 
that is fixed are you in the Alice Rivlin camp, where then it 
has virtues to it?
    Dr. Penner. Well, that would help a lot to somehow figure 
out a way of disciplining supplementals, but I think there are 
all kinds of other things that change. It is not only a matter 
of national emergencies. Your revenue estimates are, frankly, 
very bad; they can change radically from year to year, even in 
the absence of recession. There are all sorts of spending 
issues, or spending programs, that can go off in surprising 
directions. So, I think I would still not favor biennial 
budgeting.
    Chairman Ryan. All right, thank you very much. Thank you 
for your indulgence and your time. This is something we have to 
wade into, because I think all of us agree the system is not 
working to the extent that it needs to. Congress has to have 
discipline first for any system to work, but if we could get a 
system that makes it as easy as possible for us to exercise 
discipline, that is what we want to achieve. Thank you very 
much for your wisdom. Hearing is adjourned.
    [Whereupon, at 11:31 a.m., the Committee was adjourned.]

                                  
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