Thank you for the opportunity to testify before the Government
Affairs committee to discuss the imperative for budget process
reform, including the adoption of a biennial budget.
I fully support the concept of moving to two-year budgeting in
Congress. The evidence suggests that biennial budgeting would modestly
improve the efficiency of how Congress spends the taxpayers' money
and thus contribute at the margin to the critical goal of
achieving a balanced budget. Perhaps the more valuable
contribution of the specific biennial budget proposal sponsored
by Senator Thompson is that Congress could substantially reduce
the amount of time it spends in session.
Shortening the legislative calendar would help foster a change in
the culture of governmental activism in congress. We need to return
to the original concept of Congress envisioned by our founding
fathers of a part-time citizen's legislature, where serving in
Washington was viewed as a short-term stint of public service,
not a full-time career.
The case for a biennial budget, must begin with a discussion of
the urgent need for an overhaul of our chaotic congressional budget
process. It is my conclusion that the process by which we make
fiscal decisions in Washington--the rules of the game--can
substantially determine budget outcomes. A fundamental imbalance
exists in the current rules. For more than twenty years, forces
that favor more spending have consistently prevailed over forces
that favor fiscal restraint.
Last year I authored a book entitled: Government: America's
Number 1 Growth Industry. Regrettably, that is exactly what the
federal enterprise has become--our fastest growing industry. I attach
for the record a chapter of that book on the complete loss of
control of federal spending in recent decades.
How can we repair the damage and end to the pro-spending bias in
our budget rules? A top priority for this Congress should be the
enactment of a new budget act. The 1974 Budget Reform and Impoundment
Control Act is a failure. One of the purposes of the 1974 Budget
Act was to eliminate deficit spending. But here is the actual
legacy of that legislation: in the twenty years prior to the
Budget Act, the budget deficit averaged just 1 percent of GDP and
$30 billion in 1994 dollars. In the twenty years since the
enactment of the 1974 Act, the average budget deficit has been
$170 billion per year, and 3.5 percent of GDP. We have
accumulated more than $4 trillion of debt since 1976. By any objective
standard, the budget process has not worked better under the 1974
act--it has worked much worse.
The 1974 Budget Act cannot be fixed. Tinkering won't do the job.
The 104th Congress ought to drive a stake through the heart of
the current system and start over.
What should be the key components of a new budget act? They are
well known to the members of this committee so I will not long
dwell on them, but merely present a list.
1) A Constitutional Amendment outlawing Deficit Spending
Deficit spending is an unconscionable form of fiscal child abuse.
The destruction of our nation's once firmly held moral rule
against deficit spending requires us to amend out Constitution
and command Congress to do what it used to feel honor-bound to
do--that is, balance the budget.
2) An Enforceable Legislative Balanced Budget Requirement
Don't wait for a balanced budget amendment. Act now. The most
urgent reform for this Congress is to pass a legislative balanced
budget law that enforces the deficit targets established in the
House Budget Resolution. What I have in mind is a new
Gramm-Rudman formula that establishes iron-clad enforceable
deficit targets through automatic spending cuts. We are, regrettably
already seeing the GOP Congress retreat from the historic
balanced budget path enacted last year, because the commitment lacks
enforcement.
It is instructive to note that government spending in the five
years prior to the Gramm-Rudman law grew at a rate of 8.7 percent,
but slowed to only 3.2 percent in the five years it was in
effect.
3) A Supermajority Requirement to Raise Taxes Requiring a
three-fifths or two-thirds majority in both the House and Senate to
pass a tax increase would allow Congress to pass tax hikes in
cases of national emergency, but would make it very difficult for
Uncle Sam to continue its annual ritual of peacetime tax hikes.
Several states, including Arizona, California, and Oklahoma, have
enacted such measures; they have stopped tax increases dead in
their tracks.
4) National Referendum on all tax increases.
A populist budget reform that is sweeping through the states is
the requirement that any tax increase must be ratified by a popular
vote of the people in the next election. This gives the taxpayers
veto power over the legislature's efforts to raise taxes. Congress
should be forced to take its case to the people, when it wants to
take more dollars out of our paychecks. Minority leader Dick
Gephardt has suggested this reform as part of his 10 percent tax
plan.
5) Dynamic Scoring of Tax Law Changes
The 1986 capital gains tax rate increase has raised roughly $100
billion less revenue than the Joint Tax Committee estimated when
the law was enacted. Capital gains realizations are less than
half the level expected. Why these gigantic forecasting errors?
Congress still uses faulty static analysis to measure the revenue
impact of tax rate changes--a scoring technique that assumes
little change in behavior to tax changes and almost no overall
economic impact of new tax laws. We know the procedures are
wrong. But we still use them.Dynamic scoring will yield more
accurate tax revenue estimates, and thus encourage better policy.
6) An End to Baseline Budgeting
When the School Lunch Program is going to increase by 4.5 percent
per year, that is a budget increase, not a budget
"cut." Baseline budgeting is a fraud. Lee Iaccoca once
stated that if business used baseline budgeting the way Congress
does, "they'd throw us in jail." Congress should be required
to use this year's actual spending total as the baseline for the
next year's budget. If we spend more than the current year, we
are increasing the budget, if we spend less, we are cutting it.
7) A Statute of Limitation on all Spending Programs
It has been said that the closest thing to immortality on this
earth is a federal government program. Congress doesn't know how
to end programs--even years and years after their mission has
been accomplished. (Hopefully, this Congress will prove this
statement wrong!) A five-year sunset provision should apply to
every spending program in the budget--entitlements and discretionary programs.
The last component of a new budget act should be the adoption of
a two-year budget cycle--the subject under discussion this morning.
In ten of the past fifteen years Congress has proven itself
incapable of completing its annual budget responsibilities on
time. Sadly, this was routinely true of the Democratic Congresses
of the 1980s. It is now true of the new Republican Congress. This
chronic budget tardiness has resulted in routine reliance on
eleventh hour catch-all spending bills. This is no way to run a $1.6
trillion enterprise.
Congress should adopt a biennial budgeting system whereby each
new Congress would enact all appropriations and authorizations in
the first year of the two year legislative cycle. Necessary
changes in spending and taxes could be enacted during the second
year of the cycle through emergency supplemental appropriations
and revenue bills.
This budgeting approach--though by no means a fiscal panacea--
would have several advantages for fiscal policy over the current
system. These include:
1) it will discourage inflated budgets in election years.
Politics almost always dictates that spending levels are-inflated
in election years. The Republicans have been as guilty of this
practice as the Democrats. Notice that Senate and House Republicans
agreed to $10 to $15 billion of extra appropriated spending for
fiscal 1997 in order to accommodate a blizzard of pork-barrel
spending demands. This irresponsible practice would be
discouraged under a biennial budget, because budgets would always
be constructed in non- election years while binding Congress in
election years.
In fact, one provision that should be added to the Biennial
Budget Act is a required supermajority vote to enact any supplemental
appropriation. This would help ensure that only emergency supplemental spending
would be approved--not unjustifiable election- eve spending.
2) It will bind Congress to honor deficit reduction promises.
Under annual budgeting, lawmakers frequently pass budgets with ambitious
long-term spending reduction promises. Congress is forever pledging
to cut spending in the "out-years" for which the
current budget does not apply. Biennial budgeting doubles the
length of spending restraint commitments. Congress could breach
these promises only by formally cancelling agreed upon spending
targets.
3) It will improve management and procurement within federal
agencies. With two-year budget commitments, federal departments
and agencies would be given greater lead time to absorb budget cuts in
ways that would not disrupt services to taxpayers. The Defense
Department in particular would benefit as two-year budgeting
would improve long-term procurement planning. Multiyear contracts
for weapons systems, for example, are more economical and more
feasible under two-year budgets.
Each of these practical fiscal advantages are subsidiary to the
primary benefit of the Biennial Budgeting Act of 1996. And that is
the provision that would require Congress to adjourn sine die by July
31 of the second year of the budget process--absent an emergency.
We do not want a biennial budget for the purpose of freeing up
Congress's time and resources so that it can engage in new and expanded
forms of legislative meddling. My reservation with biennial
budgeting in the past has been that Congress, freed from the
time-consuming constraints of the budget, would discover new
methods of mischief. Idle hands on Capitol Hill are the devil's
workshop.
Yet by commanding the House and Senate to adjourn for the second
half of the second year, we might start a process of fundamentally
change the culture of Capitol Hill. Americans want a true citizens legislature.
They want their elected officials to spend more time at home in
the district with the people they represent. The point bears
repeating: Legislating ought to be a part-time job, not a full-time
career.
This cultural change in Washington can make a tremendous
difference in the quality of legislation that Congress enacts. Consider,
for example, a recent analysis by Barbara Anderson of Citizens
for Limited Taxation in Boston, which contrasted the state
legislature in Massachusetts to the legislature in New Hampshire.
In New Hampshire legislators get paid $100 a day when they are in
session. They adjourn in July. When they are home in their
districts, they help with constituent services while working at
their normal jobs.
In Massachusetts legislators get paid nearly $50,000 a year and
are normally in session almost year round.
In New Hampshire legislators don't have offices, they have
lockers.
In Massachusetts legislators have plush offices.
In New Hampshire the 294 men and 128 women in the legislature
come from all walks of life. 179 are retired; 24 in real
estate; 22 are government employees; 17 are in the military; 16
are homemakers; 11 are small business owners; 10 are in law enforcement;
8 are in construction; and another 8 are teachers. Only 7 of are lawyers!
In Massachusetts the majority of those who serve in Boston
identify their profession as "legislator." About half
are lawyers by
trade.
Does the different culture of public service impact policy
outcomes? Absolutely. Anderson reports that New Hampshire, with its
"part-time" legislature, has the lowest tax burden in
the nation. The full-time legislators in Massachusetts enact year
after year budgets with the seventh highest tax and spending burden
among the 50 states. Now I don't know whether the culture of small
government in New Hampshire has created a part time legislature,
or whether it is the other way around. I suspect that both reinforce
each other in a positive way.
I am certainly not suggesting that a biennial budget will produce
dramatic fiscal outcomes. But the evidence is at least suggestive
that a part-time legislature, as envisioned by this bill, is more
judicious in spending the taxpayer's money and more responsive to
the citizens that elect them to the privilege of serving in high
office.
That is why I applaud your efforts to make these long overdue
changes a reality.
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