[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
CONSTITUTIONAL SOLUTIONS
TO OUR ESCALATING NATIONAL DEBT:
EXAMINING BALANCED BUDGET AMENDMENTS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 24, 2014
__________
Serial No. 113-85
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
C O N T E N T S
----------
JULY 24, 2014
Page
OPENING STATEMENTS
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Member, Committee on the Judiciary....... 1
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the
Judiciary, as read by the Honorable Trent Franks, a
Representative in Congress from the State of Arizona, and
Member, Committee on the Judiciary............................. 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 4
WITNESSES
The Honorable Peter DeFazio, a Representative in Congress from
the State of Oregon
Oral Testimony................................................. 7
Prepared Statement............................................. 9
The Honorable Mike Coffman, a Representative in Congress from the
State of Colorado
Oral Testimony................................................. 12
Prepared Statement............................................. 14
The Honorable Justin Amash, a Representative in Congress from the
State of Michigan
Oral Testimony................................................. 16
Prepared Statement............................................. 18
The Honorable Robert C. ``Bobby'' Scott, a Representative in
Congress from the State of Virginia
Oral Testimony................................................. 23
Prepared Statement............................................. 25
The Honorable David Schweikert, a Representative in Congress from
the State of Arizona
Oral Testimony................................................. 28
Prepared Statement............................................. 29
Douglas Holtz-Eakin, Ph.D., President, American Action Forum
Oral Testimony................................................. 30
Prepared Statement............................................. 33
Henry J. Aaron, Ph.D., Bruce and Virginia MacLaury Senior Fellow,
The Brookings Institution
Oral Testimony................................................. 40
Prepared Statement............................................. 42
David Primo, Ph.D., Ani and Mark Gabrellian Professor, University
of Rochester
Oral Testimony................................................. 49
Prepared Statement............................................. 51
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 79
APPENDIX
Material Submitted for the Hearing Record
Supplemental Material submitted by David Primo, Ph.D., Ani and
Mark Gabrellian Professor, University of Rochester............. 84
Revision to the Prepared Statement of Henry J. Aaron, Ph.D.,
Bruce and Virginia MacLaury Senior Fellow, The Brookings
Institution.................................................... 122
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 123
Prepared Statement of Pete Sepp, Executive Vice President,
National Taxpayers Union (NTU)................................. 133
Response to Questions for the Record from Henry J. Aaron, Ph.D.,
Bruce and Virginia MacLaury Senior Fellow, The Brookings
Institution.................................................... 142
CONSTITUTIONAL SOLUTIONS TO OUR ESCALATING NATIONAL DEBT: EXAMINING
BALANCED BUDGET AMENDMENTS
----------
THURSDAY, JULY 24, 2014
House of Representatives
Committee on the Judiciary
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m., in room
2141, Rayburn Office Building, the Honorable Trent Franks
(acting-Chairman of the Committee) presiding.
Present: Representatives Goodlatte, Sensenbrenner, Coble,
Chabot, Bachus, King, Franks, Gohmert, Jordan, Poe, Marino,
Labrador, Holding, Collins, DeSantis, Conyers, Nadler, Scott,
Johnson, DelBene, and Garcia.
Staff present: Shelley Husband, Chief of Staff & General
Counsel; Branden Ritchie, Deputy Chief of Staff Director &
Chief Counsel; Allison Halataei, Parliamentarian & General
Counsel; Zachary Somers, Counsel; Kelsey Deterding, Clerk;
(Minority) Perry Apelbaum, Staff Director & Chief Counsel;
Danielle Brown, Parliamentarian; James Park, Counsel; and
Veronica Eligan, Professional Staff Member.
Mr. Franks [presiding]. The Judiciary Committee will come
to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
We want to welcome everyone to this morning's hearing on
constitutional solutions to our escalating national debt,
examining balanced budget amendments. And I will begin by
recognizing myself for an opening statement.
Chairman Goodlatte has asked me to apologize for his
absence at the beginning of today's hearing. He had an
unmovable scheduling conflict that is preventing him from being
here at the start of today's hearing. And given his gallant
leadership over the years on the balanced budget amendment, I
know he truly regrets not being here to start this hearing.
In his absence, Chairman Goodlatte has asked me to give his
opening statement. However, before I turn to that, I would like
to make a few comments of my own on this topic, which is one of
the most pressing problems facing America today.
We must change America's course on Federal spending and
enormous Federal deficits. It is absolutely necessary that
balanced Federal budgets once again become the norm.
Unfortunately, deficit spending has become the way of life
for the Federal Government. But it always was not this way. For
the first 140 years of America's history, we lived under an
unwritten constitutional rule that budgets should be balanced
except during times of war. According to Nobel Prize winning
economist James Buchanan, ``politicians prior to World War II
would have considered it to be immoral to spend more money than
they were willing to generate in tax revenue except during
periods of extreme and temporary emergency.''
We must return to those roots. The Federal Government
cannot continue to spend us into oblivion. The one solution
that has teeth to impose spending restraint on the Federal
Government is a constitutional amendment.
Since the 1930's, there have been numerous proposed
constitutional amendments to require a balanced budget.
Unfortunately, none of those constitutional approaches to
spending restraint have been adopted.
Over 200 years ago, Thomas Jefferson wrote to James Madison
that ``no generation can contract debts greater than may be
paid during the course of its own existence'' because,
according to Jefferson, then the earth would belong to the dead
and not the living generation.
Today America is contracting debts that will burden
multiple future generations. It is time for Congress to put an
end to this practice.
And I will now turn to Chairman Goodlatte's opening
statement.
March 2, 1995 was a pivotal day in the history of our
country. On that day, the U.S. Senate failed by one vote to
send a balanced budget constitutional amendment to the States
for ratification. The amendment had passed the House by the
required two-thirds majority, and the Senate vote was the last
legislative hurdle before ratification by the States.
If Congress had listened to the American people and sent
that amendment to the States for ratification, we would not be
facing the fiscal crisis we are today. Rather, balancing the
Federal budget would have been the norm instead of the
exception over the past 20 years, and we would have nothing
like the annual deficits and skyrocketing debt we currently
face.
In 1995, when the balanced budget amendment came within one
vote of passing, the gross Federal debt stood at $4.9 trillion.
Today it stands at over $17.5 trillion. The Federal debt held
by the public is rising as well and it is increasing rapidly as
a percentage of the country's economic output. Unlike the past,
when the debt spiked to pay for wars of finite duration and
then was reduced gradually after the hostilities ended, more
recently the debt has risen as a result of having to pay for
entitlement programs that are of indefinite duration and
difficult to reduce over time.
As the nonpartisan Congressional Budget Office has
observed, quote, such high and rising debt will have serious
negative consequences. Interest rates increase considerably.
Productivity and wages will be lower. High debt increases the
risk of a financial crisis.
What is particularly troubling is that the debts we are
incurring will burden multiple future generations. Indeed, a
2013 cross-national study found that the United States ranked
worst among 29 advanced countries in the degree to which it
imposes unfair debt burdens on future generations. It is time
for Congress to stop saddling future generations with the
burden of crushing debts to pay for current spending. We should
not pass on to our children and our grandchildren the bleak
fiscal future that our unsustainable spending is creating.
The only way to ensure that Congress acts with fiscal
restraint over the long term is to pass a balanced budget
amendment. Experience has proven time and again that Congress
cannot for any significant length of time rein in the excessive
spending. Annual deficits and the resulting debt continue to
grow due to political pressures that the Constitution's
structure no longer serves to restrain.
Simply raising taxes is not the answer. In order to pay for
entitlement spending alone solely by raising taxes, we would
have to double the marginal tax rates for all income brackets
over the next 30 years. That is all income brackets over the
next 30 years. Indeed, even if the Government confiscated all
of the Americans' personal income for the entire year, you will
could not pay off the national debt.
In order for Congress to be able to consistently make the
tough decisions necessary to sustain fiscal responsibility,
Congress must have the external pressure of a balanced budget
requirement to force it to do so.
The Framers of the Constitution were familiar with the need
for constitutional restrictions on deficit spending. When the
Constitution was ratified, it was the States that had exhibited
out-of-control fiscal mismanagement by issuing, quote, bills of
credit to effectively print money to pay for projects and
service debt. As a result of that lack of fiscal discipline,
Article I, Section 10 of the Constitution specifically deprives
States of the power to issue bills of credit. Over 200 years
later, it is the Federal Government that has proven its
inability to adopt sound fiscal policies, and thus it is now
time to adopt a constitutional restraint on Federal fiscal
mismanagement.
Several versions of the balanced budget amendment have been
introduced this Congress, including two that Chairman Goodlatte
introduced on the first day of Congress, as he has every
Congress for the last 7 years. H.J. Res. 2 is nearly identical
to the text that passed the House in 1995 and failed in the
Senate by one vote. It requires that total annual outlays not
exceed total annual receipts. It also requires a true majority
of each chamber to pass tax increases and a three-fifths
majority to raise the debt limit.
H.J. Res. 1, which Chairman Goodlatte also introduced, goes
further. In addition to the provisions of H.J. Res. 2, it
requires a three-fifths majority to raise taxes and it imposes
an annual cap on Federal spending.
While the Chairman's preference is to pass the stronger
version of the balanced budget amendment, the two-thirds
majority requirement for passing a constitutional amendment
demands that we achieve bipartisan support for any such
approach.
Our extraordinary fiscal crisis demands an extraordinary
solution. We must rise above partisanship and join together to
send a balanced budget amendment to the States for
ratification.
We are at a crossroads. We can make the tough choices to
control spending and pave the way for a return to surpluses and
paying down the national debt or we can continue further down
the road of chronic deficits, leaving our children and
grandchildren with crippling debt that is not of their own
making. The choice is ours and the stakes are very high.
And I look forward to hearing from our distinguished panel
of witnesses today about this important issue.
And I would now turn to Mr. Conyers, the Ranking Member of
the Judiciary Committee, for his opening statement.
Mr. Conyers. Thank you, Mr. Chairman.
And welcome to all of my colleagues. I too will have to
take a temporary leave, as Chairman Goodlatte has, but I hope
to get back in time to hear Bobby Scott, a distinguished senior
Member of this Committee, and his testimony.
Members of the Committee, the balanced budget amendment was
not a good idea when it was included in the Contract with
America in 1994, and it is still not a good idea today, 20
years later.
To begin with, a balanced budget amendment could undermine
critical programs such as Social Security, Medicare, and other
Government programs financed through accumulated savings in
trust funds. One of our distinguished witnesses, a respected
economist with Brookings, has made clear a balanced budget
amendment threatens the ability to pay Social Security,
Medicare, and other benefits like military and civil service
pensions. This is because all of the programs are financed
through trust funds that build their reserves through holding
Treasury securities as assets which they sell off to pay
current and future benefits.
Balanced budget amendment proposals, however, would bar the
Social Security, Medicare, hospital insurance, and other
similar trust funds from being able to draw on prior
accumulated savings to pay benefits because they all require
that total outlays not exceed total receipts for each given
fiscal year.
If a trust fund were to draw on its prior accumulated
savings, it would count as a deficit, as deficit spending under
a balanced budget amendment, which would be prohibited unless a
super majority of both houses of Congress override the
requirements or the rest of the Federal budget runs a surplus
for the year. Not likely to happen. This would put current and
future payment of Social Security, Medicare, and military
pension and other benefits at risk. It would also undermine the
Federal Government's absolute guarantee of up to a quarter of a
million dollars for individual bank deposit accounts. And in an
economic downturn, such as the one we faced in 2008, that could
lead to a panic, a run on banks, and another depression.
A balanced budget amendment, I am sorry to say, is nothing
but a rhetorical gimmick or worse a political charade.
Conservatives know that the only way they would actually
balance the budget is to decimate Social Security and Medicare
with steep funding cuts which is what they, of course, will not
want to talk about publicly ahead of time. So instead, they are
once again talking about the balanced budget amendment fig
leaf.
I remind my friends that it was the fiscal recklessness of
a former President and the Republican controlled Congress that
first got us into the fiscal challenge we face. In particular,
the massive tax cuts of 2001 and 2003 for the wealthiest
Americans caused revenue to fall as of 2004 by more than 4
percentage points of the gross domestic product. At the same
time, Federal spending rose in 2000, in 2007, and all while the
economy was showing signs of weakness leading to its near
collapse just a year later.
A large part of that spending increase was a result of
ballooning defense spending, which jumped dramatically to fund
the Iraq and Afghanistan wars. According to the Center for
Budget and Policy Priorities, the Bush administration's tax
cuts added $2.6 trillion to the public debt. And according to
the Office of Management and Budget, OMB, these cuts accounted
for nearly half of the total debt accrued during this period.
During the 1990's, Congress was able to eliminate the
deficit and run surpluses without the aid of a balanced budget
amendment. Remember that, please. There is no reason why
greater political courage, accountability, and restraint among
elected officials cannot achieve the same result while avoiding
the pitfalls of a constitutional balanced budget amendment.
Finally, a balanced budget amendment would undermine the
Government's ability to respond to economic slowdowns and
thereby prevent the Nation a speedier economic recovery.
This is not the first time that it has been explained to
this Committee the Government must have flexibility to engage
in deficit spending through the use of automatic stabilizers to
improve the economy. When the economy weakens, incomes of
individuals and businesses fail because of job losses and
declining purchases which results in reduced tax revenues. And
to end this downward spiral, Social Security, unemployment,
nutrition assistance, and other benefits help to stabilize the
decline in purchases of goods and services resulting from the
decline in incomes.
That is why essential programs such as these which,
especially in the light of declining revenues, must be paid
through deficit spending, and they are called automatic
stabilizers. Yet, a balanced budget amendment, by requiring
that total outlays not exceed total receipts every fiscal year,
would effectively prohibit the government from using these
critical stabilizers.
Although most amendment proposals do contain some sort of
exception to this prohibition, they also require a super
majority vote in both houses of the legislative body to
override the balanced budget mandate. And by the time that
Congress could react, potentially months after the fact, it
would be too late for the stabilizers to have any effect, even
assuming that a super majority in Congress agrees that there is
a problem to address.
So in sum, a balanced budget amendment would result in
longer, more severe recessions. It would prolong the suffering
of the jobless and impede the ability of Main Street to recover
in a struggling economy.
A balanced budget amendment would insert the courts into an
inherently political matter, creating the potential for a
litigation nightmare and upending of the principle of
separation of powers.
I seldom remember ever quoting the conservative
constitutional scholar, Robert Bork, but I do now, and he said
scores or hundreds of suits might be filed in Federal district
courts around the country. The confusion, not to mention the
burden on the court system, would be enormous. Nothing would be
settled, moreover, until one or more of such actions finally
reached the Supreme Court. Nor is it all clear what could be
done if the Court found that the amendment had been violated 5
years earlier. End quotation.
While I am not known for agreeing with Judge Bork, his
warning about the potential for endless litigation in the
courts over budget policy should be heeded.
In crafting a remedy for a violation, a court could direct
cuts to spending or increases in taxes in order to meet the
requirements of the balanced budget amendment. Courts have long
recognized that such complex economic matters should be left to
the elected and politically accountable branches rather than to
unelected judges to decide.
And for these reasons, Mr. Chairman and Members, I oppose
the concept of a constitutional balanced budget amendment.
And I thank the Chair and yield back any balance of time
that may be remaining.
Mr. Franks. Well, thank you, Mr. Conyers.
And without objection, other Members' opening statements
will be made part of the record.
We have a very distinguished Member panel today and I
welcome you all. And if you would all rise, I will begin by
swearing in the witnesses.[Witnesses sworn.]
Mr. Franks. Let the record reflect that all of the
witnesses responded in the affirmative.
Our first witness is Congressman Peter DeFazio.
Representative DeFazio was first elected to Congress in 1986
and currently represents Oregon's 4th Congressional District.
He serves as the Ranking minority Member on the House Committee
on Natural Resources. Earlier this Congress, Representative
DeFazio joined me in the effort to send a balanced budget
amendment to the States for ratification by agreeing to be the
lead cosponsor of H.J. Res. 2.
Our second witness is Congressman Mike Coffman.
Representative Coffman represents Colorado's 6th Congressional
District and was fist elected to Congress in 2008.
Representative Coffman serves as the Chairman of the Veterans
Affairs Committee, Subcommittee on Oversight and
Investigations. He is also the Chair of the Congressional
Balanced Budget Amendment Caucus.
Our third witness is Congressman Justin Amash.
Representative Amash is currently serving his second term in
Congress and represents Michigan's 3rd Congressional District.
Representative Amash is the lead sponsor of H.J. Res. 24, the
Business Cycle Balanced Budget Amendment. The Business Cycle
Balanced Budget Amendment requires a balanced budget over a 3-
year business cycle.
Our fourth witness is Congressman Bobby Scott.
Representative Scott was first elected to Congress in 1992 and
currently represents Virginia's 3rd Congressional District. He
is a Member of the Judiciary Committee and serves as the
Ranking minority Member on the Subcommittee on Crime,
Terrorism, Homeland Security and Investigations.
Our final witness on this panel is Congressman David
Schweikert. Representative Schweikert represents Arizona's 6th
Congressional District and is serving his second term in
Congress. He is the sponsor of H.J. Res. 10, a balanced budget
amendment which requires the annual Federal budget to be
balanced and requires a super majority to raise taxes, the debt
ceiling, and for the Federal Government to spend no more than
18 percent of GDP in any fiscal year.
I just want to welcome you all here, and we are going to
begin our testimony now. And I would ask that each witness
would summarize his or her testimony in 5 minutes or less. To
help you stay within that time, there is a timing light on your
table. Some of you have seen it before. When the light switches
from green to yellow, you will have 1 minute to conclude your
testimony, and when the light turns red, it signals that the
witness' 5 minutes have expired.
As is customary, Members will not be asked to stay to
answer questions, and I would like to thank my colleagues
sincerely for participating in this hearing. And I will first
recognize Representative DeFazio. And I welcome all of the
Members of the House participating on this panel. Mr. DeFazio?
TESTIMONY OF THE HONORABLE PETER DeFAZIO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. DeFazio. Thank you, Mr. Chairman. Mr. Chairman, I will
deviate from my prepared remarks, but I have submitted them for
the record.
I strongly supported the balanced budget amendment in 1995.
And we have heard criticisms of what could occur under a
balanced budget amendment. Well, let us think about what would
have occurred had that not failed by one vote in the Senate and
had gone to the States and been ratified.
Today we would be paying off the last of our national debt.
We would have much more capability of dealing with concerns
that I have regarding our crumbling infrastructure and other
pressing needs of this country because we would not be burdened
with high annual interest payments and concerns about ongoing
and large deficits.
The world would have been different in that, yes, the 2001
tax cuts could still have passed because we were in surplus at
that point in time. But the 2003 tax cuts would have required a
super majority to pass because we were already in deficit
spending. We were in military conflict authorized by Congress
in Iraq and Afghanistan, but we had not declared war. That is
one of the defects, I believe, in H.J. Res. 2, although I have
supported it as the best option out there. I think that we
could improve on it. I would say that if we are going to
deviate from a balanced budget, it should be under only a
declaration of war. Other military conflicts should be paid for
within the annual process, and that I think would both give a
President and the Congress a bit more opportunity to reflect
before launching foreign adventures that are very expensive in
terms of both lives and in terms of our Federal resources.
Secondly, I think we could improve upon it, and Ranking
Member Conyers raised legitimate concerns about Social
Security. We should set Social Security aside, and it should be
required under a balanced budget amendment to have 75-year
actuarial balance within its own resources. Those resources
could neither be borrowed by nor otherwise appropriated by the
Congress, and it could not be used as an offset to the rest of
the budget to make it look balanced. But Social Security itself
should be put on a course of 75-year actuarial balance. And I
have legislation otherwise pending that would do that. It has
been scored by the Social Security actuaries.
And then the debt limit. Again, I believe a defect of H.J.
Res. 2 is that it requires a simple majority to deviate from a
balanced budget in a time of military conflict, not war, but
then goes further to require that you have a three-fifths vote
to raise the debt limit. One could see a situation in which we
have an urgent military situation oversees, but it is not a
war. A simple majority of the House votes to break the balanced
budget cap, but then later in the year, we would be confronted
with the need for a three-fifths majority to deal with the debt
limit. I believe that those things should be equivalent, and
that is a further problem.
But, my experience is I came here opposed to a balanced
budget amendment, and after I had gone through two budget
cycles and watched particularly the debate over the mobile
missile and the Midgetman missile, both proposed, very
expensive systems. Congress in those days had real debates. We
would debate the DOD bill for weeks. We had days of debate over
that. We had votes on it. And in the end, Congress decided,
well, it is a choice between a Midgetman and a mobile missile.
We will do both because there was no concern for the cost, and
people did not want to decide between the two. We need to make
those tough decisions. Day in, day out, we need to make tough
decisions. You cannot pretend you can balance the budget
without revenues, and you cannot pretend that we can spend in
deficit forever.
So I believe that we need a well thought out constitutional
amendment to require a balanced budget in order to make
Congress do its job.
Thank you, Mr. Chairman.
[The prepared statement of Mr. DeFazio follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Goodlatte. Thank you, Mr. DeFazio.
Congressman Coffman for 5 minutes.
TESTIMONY OF THE HONORABLE MIKE COFFMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Mr. Coffman. Mr. Chairman, I will submit my written remarks
for the record.
I think any balanced budget amendment to the United States
Constitution is, I think, the greatest thing that the Congress
of the United States can do to change the political culture in
Washington, to improve, to reform Washington, D.C. by stripping
the power away from the Congress to continually spend money
that we do not have as a country. The vast majority of State
and local governments throughout the United States have a
requirement for a balanced budget, and I think having a
requirement like that promotes bipartisanship by virtue of
requiring all parties to come together at the end of the day
and decide what the priorities of government are given the
resources that are there.
I think we have a limited window of opportunity in which to
change the trajectory of this country in terms of its growing
debt and the problems that will come from that. And I think we
are going to be pressed fairly soon when interest rates
normalize. They are artificially low now. I think we are
spending--last fiscal year, we spent $221 billion on servicing
our debt. And once interest rates normalize, that amount is
going to dramatically grow and crowd out other programs of
Government.
I think that the cost of doing business in the United
States is already very high when we talk about taxes, when we
talk about the regulatory burdens. I think it has denied young
people that are coming into the workforce now economic
opportunities that folks like me had, and placing an additional
burden of debt on them and future generations beyond that I
think is very unfair.
I think a balanced budget to the Constitution has to
encompass all spending, only to exclude that which is necessary
in the event of a declaration of war where the country is at
war. But outside of that, I think the Congress of the United
States has to make tough choices in terms of spending.
I remember the President of the United States coming to
House Republicans, a meeting behind closed doors, to talk about
the debt situation a while back, and I remember him saying that
he really did not think it was all that bad when you look at
debt-to-GDP ratios historically like in 1945, that it really
was not that out of line where we are today. But if you look at
1945, the last year of the Second World War, the minute that
the war was over practically in August 1945, you get a very
steep decline in Federal spending.
If you look at our spending right now, the vast majority of
it is essentially now what we call mandatory spending, and that
is entitlement spending, if you will. What Congress does is
plants the seeds in terms of defining eligibility for a
specific program, then whoever meets that criteria is funded.
We do not argue that in annual appropriation bills. And so
right now in the last fiscal year, 59 percent of all spending
was in the mandatory category, 6 percent interest on the debt,
17 percent non-defense discretionary spending, 18 percent
defense spending. And what we see moving forward is that
mandatory spending is going to grow and it is going to crowd
out the rest of the spending.
We have a limited window of opportunity in terms of time.
We can make really minor changes now that will make very
significant changes down the road in terms of the trajectory of
spending and of debt. When we look at recent programs like the
Medicaid program, the expansion of Medicaid, we could, I think,
have a more effective program, cost-effective program by
delegating more power to the States in terms of the
administration of that program. I think Washington tries to do
too much, and I think in the effort of doing that, does not do
a lot of things very well. And I think we can rely more on
States to do that.
I think again if we look at Greece and what has happened to
them where they have had to make really draconian decisions,
given their debt-to-GDP ratios, I think we are clearly not
there yet. We are headed in that direction. We have got to
change the trajectory of spending. And again, I think we can
make modest changes now that will make dramatic changes down
the road.
And with that, Mr. Chairman, I yield back.
[The prepared statement of Mr. Coffman follows:]
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__________
Mr. Franks. Well, thank you, Mr. Coffman.
And we now recognize Mr. Amash.
TESTIMONY OF THE HONORABLE JUSTIN AMASH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Amash. Thank you, Acting Chairman Franks, Ranking
Member Conyers, and Members of the Committee, for the
opportunity to be here.
I would also like to thank Chairman Goodlatte, who is
walking in right now, for his leadership on this issue.
We all understand the Federal Government's budget problems,
but we also recognize how difficult it is to prioritize
responsibly without knowing that our work will ultimately
matter. Building consensus, forging compromises, and taking
tough votes are difficult if they can be undone easily.
That is why I support amending the U.S. Constitution to
require balanced budgets. We should be cautious about changing
the Constitution, however, and a BBA in particular must be
carefully drafted.
First, it must be clear, simple, concise, and general. Most
of the Constitution establishes broad principles and we fill in
the details with legislation.
Second, it must be narrowly tailored. A balanced budget
amendment should not impose substantive policy such as
requiring a super majority to raise taxes or capping spending
as a percentage of GDP. A balanced budget amendment should
require overall spending and revenue to match up. That is it.
Keeping it focused is good politics too. Constitutional
amendments require the support of two-thirds of both houses of
Congress and 38 State legislatures. They must be bipartisan to
succeed.
It also has to be workable. Michigan's budget must balance
every year. In the Michigan House, we had quarterly budget
meetings to adjust programs as spending and revenue estimates
changed. It is too much uncertainty.
In addition, we need flexibility to address emergencies. A
BBA needs a safety valve that is tight enough to avoid abuse
but loose enough to be usable.
Finally, a reasonable path to balance is vital. Many
reforms start with small savings and build over time.
Establishing the necessary trust and confidence grows gradually
too.
I would like to turn to the proposal I have introduced,
H.J. Res. 24. It meets the standards I have mentioned and has
substantial bipartisan support.
I call H.J. Res. 24 the Business Cycle Balanced Budget
Amendment because it balances over the business cycle instead
of every year. Spending is based on the rolling average of
revenue from the 3 prior years. Policies stay predictable not
only because averaging tames revenue fluctuations but also
because it does not rely on estimates that can shift.
It lets Congress choose any level of government spending
and revenue. Lower taxes with a smaller government providing
fewer services is possible, as is a larger government providing
more services with higher taxes. I think you can guess which
approach I prefer. The only non-option is perpetual deficits.
It lets fiscal policy be countercyclical. When a recession
hits, spending is still based on the pre-recession boom years.
This mechanism allows for temporary deficits. As the economy
recovers, however, spending begins to incorporate the
recession-year revenue, producing small surpluses in the good
years.
Setting spending this way provides the predictability and
stability I have mentioned while also letting revenue changes
feed into spending quickly.
The idea is to focus Congress on structural balance and
long-term prioritization instead of on constant tinkering.
Deficits from recessions and emergencies are offset by
surpluses in good years.
As for the safety valve, emergency spending requires a two-
thirds vote in Congress, the normal constitutional super
majority. Conversations I have had with Democrats and
Republican Members suggest that it is the right standard.
The Business Cycle BBA allows a full decade to reach
balance after ratification. As I said, setting national
priorities and realizing savings takes time. It lets us phase
out deficits faster, of course, but a smoother transition might
be worth taking a little longer.
The Business Cycle Balanced Budget Amendment has strong
bipartisan support. Republican cosponsors have included members
of the Republican Study Committee and the Tuesday Group.
Democratic cosponsors have been members of the Blue Dog
Coalition, the New Democrat Coalition, and the Congressional
Progressive Caucus.
The Business Cycle Balanced Budget Amendment may be the BBA
with the broadest support. Only 6 of the 14 Democrats that
cosponsored it last Congress voted for the balanced budget
amendment that was brought to the floor. Additional Members
told me they would vote for the Business Cycle BBA if it came
to the floor.
We need to balance our budget and end the downward spiral
into debt. I am convinced that it will take a constitutional
amendment, and congressional support already exists for the
right proposal. We need the confidence that our return to
fiscal responsibility and sustainability will endure. That is
why I support a well-crafted balanced budget amendment.
Thank you again for having me here today. I look forward to
continuing to work with all of you.
[The prepared statement of Mr. Amash follows:]
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__________
Mr. Goodlatte [presiding]. Thank you, Congressman Amash.
Congressman Scott, welcome to your own Committee.
TESTIMONY OF THE HONORABLE ROBERT C. ``BOBBY'' SCOTT, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA
Mr. Scott. Thank you, Mr. Chairman and Ranking Member
Conyers. I am pleased to be here today to discuss the idea of a
so-called balanced budget amendment to our Constitution.
Reducing our deficit and balancing our budget is a goal for
every Member on this panel, and I worry that we get distracted
by the title of these amendments without having any serious
discussion about whether the proposed provisions will actually
help balance the budget. If we are going to balance the budget,
it is going to require some tough votes on the budget, and many
of those votes will be career-ending votes.
One of the first votes I cast as a Member of Congress was
on the Clinton 1993 budget. It included tax increases and
spending cuts, all of which were unpopular, but that is how you
get to a balance--spending cuts and tax increases. Not one
Republican voted for it. Vice President Gore had to break the
tie in the Senate. And when the 218th vote was cast in the
House by then Congresswoman Marjorie Margolies-Mezvinsky, the
Republicans did not say ``way to go,'' but ``you have got to
go'' and chanted ``bye-bye, Marjorie.'' That vote was used to
defeat her and 53 other House Democrats the following year. But
that is what happens when you vote for a budget that actually
goes into balance. Some Members are going to lose their seats.
Needless to say, the 1993 vote was a tough vote, but it
created millions of jobs. The Dow Jones Industrial average more
than tripled and led to the first balanced budget in a
generation with surpluses on track to have paid off the entire
debt held by the public by 6 years ago. That is how you balance
the budget. Tough, career-ending votes, not with titles to
constitutional amendments. So rather than discuss the title, we
should be discussing the provisions and whether the provisions
of the legislation will help pass responsible legislation or
even hurt.
The fact is that many proposed constitutional amendments
will make it all but impossible to pass serious deficit
reduction similar to the Clinton budget. Such provisions, for
example, that require a three-fifths vote of both houses or a
super majority to enact new revenues. Now, let us talk
arithmetic. If you are going to balance the budget, raising
taxes will help balance the budget. Requiring a super majority
may be good policy for some Members for some reasons, but
suggesting that it will help balance the budget is absolutely
absurd.
Most of the proposals require the budget not in balance can
be passed by a three-fifths vote by the whole number of the
House and Senate. Every budget we considered this year was not
in balance the first year. So all of the budgets would have
required a super majority to pass. The Ryan budget only passed
with 219 votes. It should be obvious that serious deficit
reduction will be harder to pass with a three-fifths super
majority than a simple majority. And let us note that these
constitutional amendments do not strip away Congress' right to
go into deficit. They just provide a three-fifths vote to pass
what in likelihood will be any budget that we are going to
consider. And so it is clear that the provisions--when we ask
the question of whether the three-fifths majority is likely to
pass a fiscally responsible budget or fiscally irresponsible
budget, we have got to note that once you go into the budget
requiring a three-fifths vote, there is no limit to how
irresponsible you can be.
Now, the evidence on this is clear. The 2013 fiscal cliff
deal, which permanently extended most of the 2001 and 2003 Bush
tax cuts, got a three-fifths vote, notwithstanding the fact
that it added $3.9 trillion to the deficit. Incredibly most of
the no votes in going $3.9 trillion further in the ditch--most
of the no votes were no because the tax cut was not big enough.
And so some of the proposals even require a super majority
to spend more than a certain percentage of the GDP. Eighteen
percent is one proposal. The GDP has not been below 18 percent
since Medicare was passed. So if you pass that provision, there
will be significant pressure on Social Security and Medicare,
and you could cut Social Security and Medicare to shore up the
program. You can cut on a simple majority, but to save it with
new revenue, you need the super majority. That might make sense
if your goal is to cut Social Security and Medicare, but to
save them, that is not such a good idea.
Many proposals require a three-fifths vote to raise the
debt ceiling. Anybody that was around the last time we raised
the debt ceiling ought to know that is not a good idea.
Finally, I would note that the provisions found in these
proposals are not what is in State budgets. In testimony before
this Committee in 2011, one former Governor testifying on
behalf of balanced budget amendments acknowledged that none of
the proposals in the constitutional amendments before the
Committee at that time were in his State constitution, no
three-fifths required to pass a budget, no super majority to
raise taxes, no three-fifths requirement to borrow money, no
total balance without an exception for capital spending. He had
been testifying about the title, not the provisions in any of
the proposals before us. Mr. Chairman, we should not be
distracted by misleading titles, but we should notice that the
provisions of the proposals before us would drastically
encumber an already difficult process to responsibly reduce the
deficit.
Balancing the budget is a good idea, but we have got to
recognize that it often requires tough, career-ending votes.
The provisions in these balanced budget amendments will not
make such votes more likely, will in fact make passage of
responsible budgets less likely, and will make our fiscal
situation even worse.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Scott follows:]
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__________
Mr. Goodlatte. Thank you, Congressman Scott.
Congressman Schweikert, welcome.
TESTIMONY OF THE HONORABLE DAVID SCHWEIKERT, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ARIZONA
Mr. Schweikert. Thank you, Chairman Goodlatte. I appreciate
the opportunity to be here and actually share and actually
listen to my fellow colleagues.
Fellow Members, I have only been here 3\1/2\ years, and I
am growing to believe that we operate in a mathematical bubble
that is filled with delusion.
In 9 fiscal years, 78 percent of our spending will be in
the mandatory category. Nine fiscal years. That means what you
and I get to vote on in the discretionary will be down to 22
percent in 9 fiscal years. Fourteen percent of that mandatory
spending is going to be in interest. Twenty-two percent will be
in discretionary. Fourteen percent will in interest, and that
is assuming that interest rates stay within their historic
mean.
Understand how fragile we are making our republic by what
is going on right now. And if you truly, truly care about the
social contracts of Social Security, Medicare, walking into
that type of fragility from a financial standpoint is
malfeasance if not misfeasance. This is the reality we are up
against.
In my resolution, we have actually gone in H.J. Res. 10--we
have actually tried to deal with some of the realities. And one
of the realities we have to accept is the spending lobbies we
all face. How do you move into a balanced budget world when we
will have so many pressures put upon us, as actually
Representative Scott even spoke to? Do we do what is easy? Do
we say we will push this to the States and make that part of
their burden? Do we create special categories? Do we game parts
of the system? How do you design a balanced budget amendment
that deals with the realities of the structures we have created
around us?
In my balanced budget, I have tried to address both human
nature, the structures we are in, the mandatory spending, and
our entitlement obligations. How do you reach out and have the
States have a voice? How do you reach out and make sure that
each Member, when we start to game the definitions of what is
balanced and what is not, that each one of you will have the
right to have a cause of action?
One of the reasons for creating each of these layers within
my balanced budget amendment is trying to think forward to what
our world will look like, what our budgets will look like, what
this country's fiscal situation will be when the pressures from
both the spending lobbies, our entitlement obligations with the
demographic curve that is ahead of us, and at the same time,
trying to find a way to actually keep our promise, keep a
constitutional amendment functioning.
And with that, Mr. Chairman, I will submit in writing much
more detailed comments. Thank you.
[The prepared statement of Mr. Schweikert follows:]
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__________
Mr. Goodlatte. Thank you, Congressman Schweikert.
And I want to thank all the Members on the panel for their
testimony. And as I indicated or Mr. Franks indicated earlier
and as is customary, the Members will not be asked to stay and
answer questions. So thank you all for your contribution and
for your participation today. And you are excused.
And we will now welcome our distinguished second panel
today. We will give the clerk a moment to reset the table.
[Pause.]
Mr. Goodlatte. We want to welcome our panel.
If you will all rise, and as is customary, we will begin by
swearing in the witnesses.
[Witnesses sworn.]
Mr. Goodlatte. Thank you very much. Let the record reflect
that all the witnesses responded in the affirmative.
And I will now introduce our witnesses. Our first witness
on this panel is Douglas Holtz-Eakin, President of American
Action Forum. Dr. Holtz-Eakin has served as the sixth Director
of the nonpartisan Congressional Budget Office, the Chief
Economist for the President's Council of Economic Advisors, and
as a commissioner on the congressionally chartered Financial
Crisis Inquiry Commission. Prior to his public service, he held
academic positions at Princeton, Columbia, and Syracuse
Universities.
Our second witness is Henry Aaron, the MacLaury Senior
Fellow in Economic Studies at the Brookings Institution. Dr.
Aaron served as Assistant Secretary for Planning and Evaluation
at the Department of Health, Education, and Welfare during the
Carter administration, and from 1967 to 1989, was a professor
of economics at the University of Maryland. He is a member of
the board of the Center on Budget and Policy Priorities and on
the Advisory Committee of the Stanford Institute for Economic
Policy Research.
Our final witness is David Primo, a professor at the
University of Rochester and a senior scholar at the Mercatus
Center at George Mason University. He received his doctorate in
political science from Stanford University. His research
focuses on American politics, Government spending, and campaign
finance. Dr. Primo has authored or co-authored several journal
articles and policy reports, as well as three books, including
Rules and Restraint: Government Spending and the Design of
Institutions.
I would ask that each witness summarize his or her
testimony in 5 minutes or less. And to help you stay within
that time, there is a timing light on your table. When the
light switches from green to yellow, you will have 1 minute to
conclude your testimony. When the light turns red, that is it.
You are done. Your time has expired. And we hope you will honor
that timing.
And we will begin with Dr. Holtz-Eakin. Welcome.
TESTIMONY OF DOUGLAS HOLTZ-EAKIN, Ph.D.,
PRESIDENT, AMERICAN ACTION FORUM
Mr. Holtz-Eakin. Thank you, Mr. Chairman and Members of the
Committee. It is a privilege to be here today to discuss the
balanced budget amendment.
In my written testimony, I make four points that I will
summarize briefly.
Point number one is there is a real problem that needs to
be addressed. The U.S. is on an unsustainable fiscal
trajectory.
Point number two is that around the world, fiscal rules
embedded in constitutions and other legal frameworks have been
a successful strategy for dealing with such problems.
Point number three is you can think of the balanced budget
amendment as one type of fiscal rule, and its characteristics
are consistent with successful rules.
And then the last point is there are a number of
traditional concerns about implementation of a constitutional
amendment regarding military emergencies, economic distress,
and recent versions of most BBAs' attempt to address those.
Let me say a little bit about each.
Point number one. You have already heard from the first
panel characterizations of the U.S. fiscal outlook. You can
look at the most recent Congressional Budget Office 10-year
projection or the long-term budget outlook that they just put
out, and what you see is a dire fiscal outlook. We have a
temporary respite for a year or 2, and then we see an unending
rise in mandatory spending. We see a continuous rise in the
interest costs of servicing the debt. We see debt-to-GDP ratios
on an unending upward spiral. And this picture overwhelms even
a return to above traditional levels of revenue in the United
States. The upshot is that we run tremendous economic risks
with this budget outlook. We could ultimately see a sovereign
debt crisis if we do not change course, and I believe we will
begin to see consequences for economic growth much sooner,
perhaps even now, as global investors recognize that we are on
an unsustainable trajectory.
The second point is that fiscal rules have helped. There is
a Pew-Peterson Commission report that I reference in my written
testimony that looks around the globe and looks at places like
the Netherlands and Sweden where they have adopted these kinds
of rules, and they essentially solve the problem that Congress
with the best of intentions often passes rules. We have seen it
in the U.S. We have the sustainable growth rate mechanism in
Medicare, and every year we override the rule. We have had
PAYGO rules, and we override the PAYGO rules. We have had caps.
And right now, we have caps again on discretionary spending.
And it will be my forecast that a future Congress will break
those caps. It is very difficult for Congress to tie its own
hands. The fiscal rules stop that.
The features that work in fiscal rules, the things to look
for is they have to directly address the problem. The second
thing they have to do is they have to link between what the
Members of Congress, the policymakers, do and the fiscal rule
outcome, a clear connection so you can see actions and results.
And the third, it has to be transparent to the public and they
have to buy into this.
What does the balanced budget amendment look like from this
perspective? Clearly, our previous fiscal rules have not
worked. This would have the advantage of being embedded in the
Constitution, much more difficult for any Congress to override.
The process for getting rid of a constitutional amendment is
very long. So once it was there, it would be hard to override
it. There is a clear link between budgets passed in Congress
and the fiscal rule. They have to balance. That is very easy to
understand. It addresses the problem, which is not emergency
spending that has been piling up or recessions that have been
piling up. The problem is sustained rises in mandatory
spending. This would focus on the long-term path in a
systematic way. And it is a process of ratification whereby
House, Senate, 38 States, Republicans, Democrats would generate
the education that would make it transparent to the public
about what this rule was. And so it has those characteristics.
The last point is simply that there are many people who
express what I view as legitimate concerns about this being
overly restrictive in times of national emergency, either
military or economic. And there are a variety of proposals to
allow super majorities in the House and the Senate to override
the balance requirement in those circumstances. These strike me
as good things for the Committee to think hard about because
these contingencies will arise in the future. There is no way
to avoid that, and you want to have anticipated them in the
design of the balanced budget amendment.
So to summarize, I do not think everyone starts out
thinking about economic and budgetary policy with the idea that
we should amend the Constitution to have a balanced budget. But
I have ended up there because it is a strategy that has been
successful around the globe. The strategies we have employed in
the United States have not worked, and I think we should build
on what we know about other countries' success here in the
United States.
I thank you and I look forward to the chance to answer your
questions.
[The prepared statement of Mr. Holtz-Eakin follows:]
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__________
Mr. Goodlatte. Thank you, Dr. Holtz-Eakin.
Dr. Aaron, welcome.
TESTIMONY OF HENRY J. AARON, Ph.D., BRUCE AND VIRGINIA MacLAURY
SENIOR FELLOW, THE BROOKINGS INSTITUTION
Mr. Aaron. Thank you very much, Mr. Chairman, Mr. Ranking
Member, Committee Members. Thank you for inviting me to testify
this morning.
Balanced budget amendments have been around for a long time
because they appeal to a universally accepted virtue of fiscal
responsibility. Still, I believe that Congress should not send
House joint resolutions 1 or 2 to the States for ratification
for at least five separate reasons.
First, deficits are sometimes beneficial, and that is not
just during declared wars, but also during economic slowdowns.
If either H.J. Res. 1 or 2 had been in effect during the recent
financial crisis, they would have required either that taxes be
increased or spending cuts in ways that would have intensified
unemployment and hammered GDP. The constitutional amendments
proposed in these resolutions would have become automatic
destabilizers threatening perverse tax and expenditure policy
that would raise unemployment and destabilize financial markets
unless avoided by super majority votes. To require a super
majority vote to avoid perverse policy is folly. Even if a
super majority were eventually achieved, recession-fighting
actions would be delayed by many months.
Second, requiring a super majority to raise the debt
ceiling or to run a deficit is a veritable summons to political
extortion by an intransigent minority. Two-fifths of either
house could block action unless its pet plans were enacted.
This threat has no political allegiance. It could be wielded on
behalf of small Government or large Government, lower taxes or
higher taxes, lower spending or higher spending.
Third, the deficit and debt ceiling provisions of H.J. Res.
1 and 2 would prevent access to Social Security and Medicare
hospital insurance funds when needed to sustain benefits unless
the rest of the budget was not just balanced but was in surplus
unless, that is, three-fifths of the whole membership of both
houses agreed to sustain pensions for the elderly and disabled.
A similar problem could stymie important Government activities
vital to combat financial panic just when they are most needed.
Fourth, a Congress constrained by the limits of H.J. Res. 1
or 2 but anxious to accomplish some agreed objective would
inevitably resort to all manner of devices that would
circumvent those limits in ways that led to inefficient
Government. Spending could become tax credits, seeming to lower
both spending and revenues, or unfunded mandates on State
governments. No one who is interested in honest Government
should encourage elected officials to find devious ways to
accomplish objectives that are geared to them.
Finally, Mr. Goodlatte, I must note that just 3 years ago
you proposed an earlier version of H.J. Res. 1 to limit
Government spending to 18 percent of economic output. Now you
propose a limit of 20 percent of economic output. That is $345
billion a year more than the limit you proposed just 3 years
ago when you would have made such spending a violation of the
Constitution. Perhaps--just maybe--at some future date, in
light of new and better information, you might change your mind
again. Legislation, not a constitutional amendment, should be
used to implement spending limits that can change so much and
so fast, as you have changed your mind on how much the Federal
Government should be allowed to spend.
Thank you very much.
[The prepared statement of Mr. Aaron follows:]
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__________
Mr. Goodlatte. Thank you, Dr. Aaron. And since you have
referenced me, I will take the opportunity to correct you
immediately. My position has not changed.
Mr. Aaron. I have a copy of H.J. Res. 1 that was presented
to the House that----
Mr. Goodlatte. That was amended in Committee.
Mr. Aaron. Okay, fine.
Mr. Goodlatte. That was not amended by me changing the
bill. It was amended by the----
Mr. Aaron. I stand corrected.
Mr. Goodlatte [continuing]. Consensus of this Committee.
Thank you, Dr. Aaron.
Dr. Primo, welcome.
TESTIMONY OF DAVID PRIMO, Ph.D., ANI AND MARK GABRELLIAN
PROFESSOR, UNIVERSITY OF ROCHESTER
Mr. Primo. Thank you very much. Chairman Goodlatte, Ranking
Member Conyers, and Members of the Committee, thank you for
inviting me here today to discuss the need for a constitutional
amendment to help achieve credible and sustainable fiscal
reform.
My three-part message today is simple. First, the current
budgetary status quo is simply unacceptable and must change.
Second, the short-run focus in politics, combined with this
institution's prerogatives with respect to rules, make
achieving this change in the form of durable, long-term reform
an elusive goal. Third, a constitutional amendment, if properly
designed, can create the pathway for Congress to do what is
needed to place the United States' fiscal finances on firm
ground.
So, first, why is a change in fiscal course necessary?
Well, as we have already heard today, we have made promises to
current and future generations that we have no hope of
fulfilling given current revenue streams. Just to throw out
another number, the U.S. Treasury estimates that the national
debt will approach 250 percent of GDP by 2080. Now, for the
record, I do not believe this estimate. Not worth the paper it
is printed on. Now, it is not that I dispute the Treasury's
calculations. It is just that the Government's finances, the
U.S. economy, or both will implode long before we ever get to
that point. This estimate and long-term projections from the
Congressional Budget Office and others send a clear message:
the current path is not sustainable.
So what do we do? Well, to get on a stable fiscal path and
stay there, Congress needs to act quickly and credibly. The
solutions, which must include some reform to entitlements, will
not be easy to implement. As all of you know all too well,
short-run pain for long-run gain is a difficult sell
politically. What is worse, the longer Congress waits to act,
the more difficult reform will be. Financial advisors tell us
that the earlier we start saving for important goals like
retirement or our children's education, the easier it will be
to achieve those goals. Well, while the Federal Government's
budget is different than a household's budget in many ways, in
this case the analogy is apt.
Now, even if these political hurdles can be overcome,
Congress faces still another obstacle. Itself. Congress, unlike
a corporation, cannot write a contract that binds future
Members. This is true with respect both to substantive reforms
like changes to entitlements and process reforms like budget
rules. What Congress does today a future Congress can undo
tomorrow.
And this is where the Constitution comes in. A well-
designed constitutional amendment would place permanent, truly
enforceable limits on Congress' ability to tax and spend. Just
as importantly, it would create an environment under which the
question for Members would no longer be whether to fix the
Nation's problems but rather how to do so.
The promise of a constitutional rule as an enforcement
mechanism lies in its durability, but this durability is also a
peril. Bad rules can be locked in just as good rules can be.
While there are many ways to structure a constitutional
amendment, there are certain features that all worthwhile
proposals should possess.
First, a constitutional amendment needs to be flexible to
account for major disruptions like war. At the same time, the
amendment also needs to be precise to prevent illegitimate end
runs around its provisions. It needs to clearly define spending
and revenue, for example, and specify how those figures will be
calculated. I do not believe these definitions should be left
to implementing legislation. That is when the mischief might
set in.
Finally, the amendment should account for economic ups and
downs by setting targets or limits based on a multiyear period
on long-term economic performance. A key advantage of this
smoothing approach is fewer sudden changes to Government
programs.
Of course, nothing is perfect, and as we have seen today,
skeptics of constitutional budget rules criticize them in
several ways.
First, they point to specific design flaws such as
requirements that a budget has to be balanced year in and year
out. These sorts of critiques reinforce the need for careful
rule design, but they do not support outright rejection of
constitutional reform.
Others worry about U.S. Supreme Court overreach if it is
given the authority to adjudicate disputes over the amendment.
These concerns about Court enforcement can be addressed by
limiting remedies and clarifying which parties have standing.
Moreover, the clearer you make the balanced budget amendment or
other constitutional budget rule, the less leeway the Court
will have in interpreting it.
Finally, some analysts claim that process reform cannot
force a consensus where none exists. Yet, this is precisely the
point of a constitutional budget rule, to force change when
change makes--when politics makes change difficult.
In closing, amending the U.S. Constitution is a serious
step for the country and one fraught with political and
procedural challenges. We are unlikely to achieve credible,
long-term budget changes, however, without such a drastic
measure.
Thank you again for inviting me here to testify today. I
welcome your questions.
[The prepared statement of Mr. Primo follows:]
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See Appendix for supplemental material submitted with this statement.
__________
Mr. Goodlatte. Thank you all for your testimony.
I will begin with the questioning and I will begin with a
quote from the person who I attribute raising the alarm bells
about debt and who I think would very much agree with our
concern. This is not a new idea at all. In 1798, just 9 years
after our Constitution took effect, Thomas Jefferson said, ``I
wish it were possible to obtain a single amendment to our
constitution; I would be willing to depend on that alone for
the reduction of the administration of our government . . . , I
mean an additional article taking from the federal government
the power of borrowing.''
Later in 1821, he said there does not exist an engine so
corruptive of the Government and so demoralizing of the Nation
as a public debt. It will bring on us more ruin at home than
all the enemies from abroad against whom this army and navy are
to protect us.
In a letter to James Madison at the time of the writing of
our Constitution or shortly thereafter, he said, then I say the
earth belongs to each of these generations during its course,
fully and in its own right. The second generation receives it
clear of the debts and encumbrances of the first, the third of
the second, and so on. For if the first could charge it with a
debt, then the earth would belong to the dead and not to the
living generation. To preserve the independence of the people,
we must not let our rulers load us with perpetual debt. We must
make our election between economy and liberty or profusion and
servitude.
Dr. Holtz-Eakin, Members of Congress have been proposing a
balanced budget amendment for decades, and amendments passed
the Senate in 1982 and the House in 1995. How does the Federal
Government's fiscal outlook today compare to 1982 or 1995 when
those balanced budget amendments passed one house of Congress?
What is the danger of waiting another 30 years to adopt a
balanced budget amendment?
Mr. Holtz-Eakin. The fiscal picture is considerably worse
in two very specific ways. The first, the level of debt is much
higher even relative to GDP, and the second, the majority of
spending is now in the mandatory programs not the discretionary
programs. And so year-to-year changes are much harder to
accomplish at this point in time. And the baby boom has now
retired. The future is here in terms of the demographic shift.
So I would say that our fiscal outlook is immeasurably worse
than at those points in time.
Mr. Goodlatte. You are the former head of the CBO and are a
longtime observer of Federal budget policy. In your experience,
have you seen any statutory caps, goals, or cuts that have had
the same type of long-term effect in getting Federal deficit
spending under control that a balanced budget amendment could
have?
Mr. Holtz-Eakin. No. As I noted in my testimony, the U.S.
does not have a budget. It often does not have budget
resolutions in either the House or the Senate. There is nothing
that makes discretionary and mandatory spending and taxes add
up in any systematic way. A balanced budget amendment would
accomplish that.
Mr. Goodlatte. Thank you.
Dr. Primo, for decades the Federal Government has run
deficits during good economic times and bad, and in both
Republican and Democrat administrations despite the fact that
Americans overwhelmingly believe the deficit is a problem. What
is the cause of this systemic deficit spending and how would a
balanced budget amendment address the problem?
Mr. Primo. The challenge that legislators face is that
going home to your district and saying that you have balanced
the budget, if it means that you also have to tell your
district that a program was cut or you had to make some hard
choices on Medicare or Social Security, it is just a very
difficult sell to make politically. So it is always much easier
to say we will balance the budget tomorrow. Today let us
preserve this program that my constituents care a lot about.
The deficit is this amorphous thing to most Americans. Even
though they do support balancing the budget, if you start
asking, you know, do you support cutting Medicare, do you
support even adjusting Medicare--forget about cuts. Most people
are not talking about cutting Medicare, just talking about
reducing the increase in growth.
Mr. Goodlatte. So if you are required to make the tough
decisions, it is actually easier for Members to take those
tough----
Mr. Primo. The balanced budget amendment or any sort of
constitutional budget rule essentially gives politicians cover.
Mr. Goodlatte. Is that the experience of the States? Do
State experiences with balanced budget amendments offer us any
insights into the feasibility of a Federal balanced budget
amendment? Forty-nine out of fifty States have such a
requirement.
Mr. Primo. Absolutely. The States are models of fiscal
responsibility compared to the Federal Government, and that is
due in part to the fact that they face many more constraints,
including balanced budget rules. Now, things are not perfect at
the State level, but the U.S. Federal Government would be in
much better shape if it had the same profile that the States
had in terms of fiscal responsibility.
Mr. Goodlatte. Thank you.
Dr. Aaron, since 1960 the Federal Government has run a
budget deficit in all but 6 fiscal years. That is 6 out of 54
that we balanced the budget. Obviously, previous attempts to
control spending have not offered a long-term solution. Do you
have a suggested enforcement mechanism to prevent the Federal
Government from regularly running annual budget deficits that
have led us to a $17.5 trillion national debt?
Mr. Aaron. I think there is no substitute for responsible
leadership and courage by Members of Congress.
Mr. Goodlatte. Agreed, but 49 out of 50 States have this
supplement to their courage.
Mr. Aaron. 49 out of 50 States are beholden to Standard &
Poor's and Moody's. They are the disciplines which require
balance and fiscal responsibility among the States because if
they fail to do so, they pay a very high price.
Mr. Goodlatte. You do not think that same economic law
applies to the Federal Government?
Mr. Aaron. Not at all, as we have seen very clearly.
Mr. Goodlatte. I have seen the----
Mr. Aaron. The Federal Government is borrowing at close to
a 0 interest rate today despite these deficits, many of which I
share your concern about, let me emphasize. And I want to see a
program to bring the budget under control over the long haul,
as well as you do. But the fact of the matter----
Mr. Goodlatte. Well, the House has passed budgets the last
3 years that lead to balance. The Senate has not done so. The
President has not proposed one. What is it that will force them
to look at the economic reality?
And I would agree with you that you cannot balance the
budget every year, and I would agree with you that sometimes
incurring debt is a good idea. The very man that I admire and
cited here borrowed money to purchase the Louisiana Territory
with the approval of the Congress. So there should be
exceptions, obviously, but that does not mean the exceptions
should swallow the rule, which is what I think is happening to
us here in recent generations.
Mr. Aaron. Was there a question in there?
Mr. Goodlatte. I just want to know if you agree with that
statement or not.
Mr. Aaron. I am not sure which part of it, sir.
Mr. Goodlatte. All right. Well, my time has expired.
And so we will turn to the gentleman from New York, Mr.
Nadler, for 5 minutes.
Mr. Nadler. Thank you. Let me make a short statement and
ask a couple of questions.
I take issue with the fundamental premise of this hearing.
Since 2010, deficits have been on a sharp downward path
from 10 percent of GDP in the first post-Bush budget set by
this Congress when Bush was still President to 4 percent of GDP
in 2013. By next year, the deficit will fall to about 2 percent
of GDP, less than the average of the 4 decades from 1969 to
2008, and stay there probably at least to 2018.
From my point of view, the deficit has come down too far,
too fast. It has held down economic progress, and I wish our
deficit were a little higher than it is now. But 2-3 percent of
GDP is fine because at that level, your national debt, assuming
a reasonable economic growth rate, is not increasing relative
to the size of the economy at all.
We are not facing any immediate escalation of the deficit.
In fact, the exact opposite is true. The deficit is reasonably
under control now.
I have a number of questions for Dr. Aaron.
First, if we pass the balanced budget amendment, aside from
the fact that it would prohibit us from doing anything to
recover from recessions, it would have turned the 2008
recession into a depression, and so forth because you cannot
take any countercyclical moves, what would the effect on Social
Security and Medicare be of a balanced budget amendment?
Mr. Aaron. Well, currently--let us break Social Security up
into its two component pieces, disability insurance and old age
and survivors' insurance.
As we speak, the disability insurance program is dipping
into its trust fund, selling off securities in order to sustain
current benefits. If the disability insurance fund were barred
from doing that, as it would be if there were a debt ceiling
because when the disability insurance fund cashes in the bonds
by selling them into the Treasury, the Treasury then has to
sell them to the general public, and the debt limit in this
proposal applies to debt held by the public. So that
transaction would be foreclosed. And unless there was a three-
fifths majority of the whole membership of both houses----
Mr. Nadler. Which would mean 40 percent could blackmail the
rest of the country.
Mr. Aaron. I am sorry?
Mr. Nadler. Which would mean that 40 percent could
blackmail the rest of the country.
Mr. Aaron. Precisely. Unless that vote was forthcoming,
disability insurance benefits would have to be cut by about 20
percent this year.
Currently Social Security is still running a cash flow
surplus counting its interest income, but starting in 2022, it
too would be----
Mr. Nadler. The balanced budget amendment, to make it
short, would make it impossible under a lot of circumstances to
pay Social Security as envisioned.
Mr. Aaron. That is correct.
Mr. Nadler. Thank you.
Second, 49 of the 50 States have balanced budget
amendments. New York passed one in 1847. I was not there to
vote for it. Is it not true, though, that these balanced budget
amendments all refer only to operating budgets and permit
borrowing for capital budgets and that the proposed balanced
budget amendment on the Federal level is completely different
because it would say in effect that unless you have an
extraordinary vote for an emergency, you cannot borrow money
for any purpose, capital or operating?
Mr. Aaron. The State balanced budget requirements differ in
many respects. Some of them are only prospective. The budget
has to be balanced going into the year, but in fact, it can be
in deficit. As you mentioned, borrowing for capital purposes is
frequently permitted. And the fact of the matter is every State
of the Union has substantial debt outstanding. Their ability to
service that debt as evaluated by the bond rating houses varies
widely, and it is that discipline that holds them----
Mr. Nadler. But a balanced budget amendment on the Federal
level would, in effect, say that except for extraordinary
circumstances like a war or a three-fifths vote, you cannot
borrow money for any purpose.
Mr. Aaron. Beyond whatever the ceiling is set in the law.
Mr. Nadler. No. You cannot borrow money----
Mr. Aaron. That is right. If it is a balanced budget, then
you cannot borrow for any----
Mr. Nadler. You cannot borrow money. Does that make any
economic sense at all?
Mr. Aaron. I think the key point here is that the Federal
Government has responsibilities that require a measure of
flexibility from year to year. Embedding in the Constitution
hard and fast rules, however cleverly crafted, is going to
create very serious obstacles to sound policy under all kinds
of different situations.
Mr. Nadler. Thank you.
Let me just make one observation before my time runs out. I
agree with the Chairman when he said that Congress cannot enact
laws to bind our successors. That is correct, and thank God for
that. We should not bind into the Constitution things that bind
our successors except for fundamental liberties and the means
of getting things done, a process, how Government operates. But
specific economic doctrines, which we may agree with today but
we may find in 30 or 40 years that people disagree with, should
not be bound into the Constitution. As one of the Justices
said, the Constitution does not enact the laws of Herbert
Spencer into the Constitution, for those who remember 19th
economists, and we should not enact the doctrines of 20th or
21st century economists or of ourselves into the Constitution
to bind our successors who may find that they disagree, and
they should have the freedom--our successors 20, 30, 40, 70
years from now should have the freedom to make their own
decisions.
I yield back.
Mr. Goodlatte. The Chair thanks the gentleman and
recognizes the gentleman from North Carolina, Mr. Coble, for 5
minutes.
Mr. Coble. Thank you, Mr. Chairman.
Gentlemen, good to have you with us this morning.
Dr. Primo, let me ask you a question. If the Federal
Government does not change its course on deficit spending, what
will the effect be on discretionary spending?
Mr. Primo. The effect on discretionary spending will
essentially be to crowd it out even more than it is already
being crowded out. As already discussed, in 5-10 years,
discretionary spending will comprise an even smaller share of
the budget than it currently does, and if things do not change,
in 30 or 40 years, there is basically going to be no room in
the budget for discretionary spending.
Mr. Coble. Anyone else want to be heard on that question?
Mr. Holtz-Eakin. I think this is a very important issue in
the following sense. The discussion about binding the future is
a serious consideration, but the way mandatory spending is set
up, we are binding the hands of future voters, future
Congresses to have no flexibility to enact national priorities
of their own because they will have to honor these mandatory
spending commitments. And that is a serious restriction on
their ability to run this country.
Mr. Coble. Dr. Aaron?
Mr. Aaron. I think it is important to recognize that we do
face in all likelihood the need to take measures either to
raise taxes or cut spending in order to prevent excessive
deficits in the future.
But I want to emphasize the uncertainty here. The
Congressional Budget Office in 2002 projected that the 2012
budget would be in surplus by $600 billion. In 2012, in fact it
was in deficit by more than $1 trillion, a swing of $1.6
trillion. The Congressional Budget Office has removed from its
estimates of Medicare spending in just the past 2 or 3 years a
total of $1 trillion in anticipated Medicare and Medicaid
spending over the next decade. We are talking here about
projections as though they were hard facts. They are not. They
are the product of assumptions that we are currently making.
They are subject to change because of different economic
circumstances and because of legislative actions that can be
taken by you people who are on this Committee. They are not a
binding constraint that is a reality that is going to occur
with absolute certainty. These projections may turn out to be
as serious as the adjectives that Mr. Holtz-Eakin and Mr. Primo
have used; they may not. And as we get more information, we
should react through the legislative process to respond to the
reality on the ground, but we should not treat projections of
spending in 2040 or 2050 or 2060 as hard realities that are
already here with us.
Mr. Coble. Thank you, Dr. Aaron.
This has been touched earlier, but let me revisit it with
more detail. Some argue that Social Security and Medicare and
Medicaid will be cut if we do, in fact, adopt a balanced budget
amendment. What conversely will happen to these programs if we
do not adopt a balanced budget amendment or some other
permanent fiscal rule? Dr. Primo, do you want to start it?
Mr. Primo. Sure. If we do not adopt some sort of
constitutional rule, eventually these programs will get fixed,
and they will get fixed because Congress will not have a
choice. We will face a crisis situation where the U.S. debt
will be so high that creditors will lose faith in us. We take
for granted right now that our dollar--our debt will always be
held in good esteem by the rest of the world, but things change
and crises happen overnight in the world of finance. And this
idea that we should not be concerned about long-run projections
because they might not come true is like saying you should not
bother saving for retirement because you might not live to
retire.
The fact is that if we do not do anything, we will have to
make choices down the road with respect to Medicare and Social
Security, but they are going to be far harder than they would
be if we made them today. And that is, I think, the real
central message, is that there is no pressure to act on
Congress until a crisis hits in the absence of a constitutional
rule.
Mr. Coble. Thank you, Doctor.
Before my red light illuminates, anyone want to be heard
further on this?
Mr. Holtz-Eakin. I just want to say that as someone who
directed the Congressional Budget Office, I am painfully aware
of the uncertainty that comes with these projections, and I
understand that. But you have to think then about what is the
risk management strategy of a Congress or a nation? Do you want
to error on the side of these numbers turning out to be even
worse than they are? Or do you want to take measures that get
them under control? Or do you want to just count on something
good happening? And I worry about a strategy like that.
The second thing I will point out is the one thing that is
not uncertain is that people get older 1 year at a time, and
the fundamental driving force in the Federal budget for a long
time has been the demographic shift, and despite the fact that
there was no uncertainty, the problem was not dealt with. So I
do not think uncertainty changes some of the dynamics here.
Mr. Coble. I see my red light is illuminated. Dr. Aaron, do
you want to briefly respond?
Mr. Aaron. I agree completely that uncertainty does not
remove the importance of taking actions in light of
possibilities. But that does not argue for embedding your
actions in the Constitution. It argues for the Members of this
Committee and of this House and of the entire Congress of
taking the farsighted steps legislatively necessary to deal
with those steps.
As Mr. Nadler suggested, one can argue about whether the
current budget situation if we should have a larger or smaller
deficit. I tend to agree with him on that point. But I think
everybody on this Committee and I am sure all three of us agree
that legislative action to lower the future deficits that the
Nation probably will encounter now would be desirable
legislation. So passing legislation today, if the compromise is
a mix of spending cuts and tax increases--I do not know what
the mix would be, but taking action now to place in the laws
changes in policy that will forestall the deficits we fear in
the future, that is the responsibility of legislators.
Mr. Coble. Thank you, Mr. Chairman.
Mr. Goodlatte. The time of the gentleman has expired.
Mr. Coble. I yield back.
Mr. Goodlatte. The Chair recognizes the gentleman from
Virginia, Mr. Scott, for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, I think
we can all agree that we are in a fiscal mess. Some of us
actually cast tough votes that cost many of our colleagues
their seats when they voted for the 1993 Clinton budget. Fifty-
four Democrats lost their seats as a direct result. When
President H.W. Bush tried to do something about the deficit,
that was a major factor in his failure to win reelection. So I
think we can all agree that we are in a fiscal mess.
Now, all of our witnesses seem to assume that the
constitutional amendment might actually help without discussing
the exact provisions in the legislation and how it will help or
not, ignoring the fact that if you can actually do something,
somebody is going to have to cast some career-ending votes.
Now, Mr. Holtz-Eakin, you went to great lengths to show how
we can break the rules willy-nilly. In there, in all of these
provisions, a three-fifths exemptions, where you get a three-
fifths vote, you can ignore everything?
Mr. Holtz-Eakin. There is absolutely I think in any
sensible balanced budget amendment provision for emergencies.
Mr. Scott. Right. Three-fifths. Now, you have been around
long enough. It is easier to get a three-fifths vote for a
bunch of tax cuts or a simple majority to vote for a budget
that will end the careers of a substantial portion of whichever
caucus votes for it? It is obviously easier to get a three-
fifths vote like the $3.9 trillion----
Mr. Holtz-Eakin. I will leave it to the professionals on
the politics of that.
Mr. Scott.--$3.9 trillion in the ditch we passed. And the
only reason it did not get--the only reason--it got more than
three-fifths. The only reason it did not get more because half
the people did not think it was big enough.
Dr. Primo, you talked about the State budgets. We pointed
out that the State budgets have a capital exemption. Can you
point to any provisions found in H.J. Res. 1, 2, or 10 that are
found in most of the State constitutional amendments called
balanced budget?
Mr. Primo. You are asking just to clarify do any of the
proposals at the Federal level include separate capital
budgets?
Mr. Scott. You said the States--their governments have
balanced budget amendments. A simple question. What in H.J.
Res. 1, 2, or 10 can be found in State governments, in most of
the State government constitutions? Governor Thornburgh, when
he was here, could not think of one.
Mr. Primo. In my research on State balanced budget rules, I
have found that rules that are well designed and are enforced
by courts that are accountable to the people under certain
conditions actually have lower spending than States with rules
that are not as well designed. So there is variation in the
rules, and I think that is a key message.
Mr. Scott. I take that as a no, you do not find any of the
provisions in H.J. Res. 1, 2, or 10 that are found in most
State constitutions.
Mr. Primo. Well, the State governments also cannot declare
war, and so, you know, it stands to reason that the amendments
are going to be different.
Mr. Scott. I think I have made my point. None.
Dr. Aaron, Social Security can be fixed. Everybody knows we
are on an unsustainable trajectory on Social Security and
Medicare. You can fix it using arithmetic one of two ways. You
can add revenues. You could cut benefits. If these amendments
are passed, is it not true that you could cut benefits on a
simple majority, but to save them or shore them up with
revenues, you would need a super majority?
Mr. Aaron. I believe the rules in these resolutions apply
to aggregate spending and to the debt level. If you wanted to
raise benefits when the budget was balanced without raising
taxes, that would create a deficit and would, thereby, require
a three-fifths vote. You could cut benefits by a simple
majority. You could not, however, cut revenues by a simple
majority if it would throw the budget into deficit.
Mr. Scott. Yes, but you could cut taxes on a simple
majority, but to raise taxes, you would need on most of these
proposals a super majority.
Mr. Aaron. Yes.
Mr. Scott. In fact, if you cut taxes 1 year and figured out
that was a stupid thing to do and wanted to go back and fix it,
you would need a super majority to get it back.
Mr. Aaron. I believe that is correct.
Mr. Scott. Can you say a word about if there is a question
of whether the budget is in balance or not, what the courts
would do with that question?
Mr. Aaron. I am not a lawyer, and I confess I have not
thought about that. But if I were a Member of this House, I
would be acutely concerned about the prerogatives of the
legislature and very anxious to make sure that those were not
impeded by the interference, if you will, of the judicial
branch in what are genuinely legislative responsibilities.
Mr. Scott. Mr. Chairman, could I recognize a group that is
in the audience? G.R.O.W. from Richmond. If you could just wave
your hands. Thank you. Thank you, Mr. Chairman. They are
learning all about balancing the budget today.
Mr. Franks [presiding]. I doubt that.
[Laughter.]
Mr. Franks. But we welcome you all here today very warmly.
Mr. Franks. Mr. Holtz-Eakin, you know, sometimes I wish
engineering paradigms could be applied in these kinds of
discussions. Mr. Einstein said that ethical axioms are found
and tested not so differently than scientific axioms. That
which stands the test of experiment or experience is the truth.
Now, we have a lot of experience with budgets, and I am
always amazed that we do not look at that. If we did that in
engineering where we ignored the laws of thermodynamics, we
would be blowing things up every time we turned around. These
things--we know that they are so consistent that over time we
can put people on the moon by adhering to them and working
within those parameters. And yet, throughout history, we have
seen a real experiment here. The States have balanced budget
amendments, and we always hear all of the terrible
possibilities that might occur if the Federal Government had to
do the same thing that every family in America does, that every
State has to do. Somehow it is going to bring these untold
disasters.
Let me ask you. Do you know in any significant instance
where the requirement of States to balance their budget has
brought about or manifested some of these disasters that my
friends on the left have articulated?
Mr. Holtz-Eakin. No. In my study of State balanced budget
rules, I would echo what Dr. Primo said, which is there is a
lot of difference in the rules and there are differences in
outcomes, but no disasters that come from having such rules.
Mr. Franks. Well, again, my friends on the left seem to
think that we can repeal the laws of mathematics if we all get
a good enough vote here. But those are stubborn things.
Let me change to you, Dr. Primo. Again, one of the
comments, again, my friends on the left suggest, is that the
social network of programs that we have here, Social Security,
Medicare--these things will be vitally threatened by a balanced
budget amendment. I guess I have a two-part question.
What do you think threatens those programs today and in the
future the most?
Mr. Primo. I think what threatens those programs the most
is not doing anything today to fix them. The longer we wait,
the harder it becomes. And the Treasury, just very quickly--if
we wait 10 years to make changes on Medicare, Social Security,
and other programs, we are going to have to make a sacrifice
that is 20 percent bigger. If we wait 20 years, it is going to
be 50 percent bigger. So the point is if we start today, we
will be in a much better situation. And passing a balanced
budget amendment today or another constitutional budget rule
today will force Congress to start moving toward fiscal
responsibility. Right now, it is very easy to say, oh, you
know, the deficit is down in the last few years. Let us just
wait a few years. That is always the answer in Washington.
Mr. Franks. Well, I could not possibly--I am in violent
agreement with you.
But let me ask you then does it not stand to reason that
one of the very most important things that we could do to save
Social Security and some of our programs to protect the social
fabric of the country as they are ostensibly put in place to
do--would that not be one of the most important things we could
do, to pass a balanced budget amendment?
Mr. Primo. A constitutional budget rule will force Congress
to have an important discussion about how we can design
Medicare, Social Security, and other social programs to be
sustainable into the future. The problem I have been seeing in
the debate over these programs is that some Members will say,
you know, we will talk about Medicare and Social Security as
they exist today as though they can stay like that forever.
Something has got to change, and the question is are you going
to let circumstances change those programs for you or are you
going to act and change them proactively so that we can create
programs that are sustainable over the long run. That is the
choice facing the Congress.
Mr. Franks. Well, once again, I agree with you. But you
postulated that one of the things that threatens these
programs, the Social Security and other programs like it, are
the fact that we are not sufficiently motivated to act now to
deal with them so that they can project and actuarially come
out in a way down the road that is sustainable. And you have
also suggested that one of the greatest mechanisms to vitiate
that problem is a balanced budget amendment. So I just would
like to suggest that if we really care about things like Social
Security, if we really care about the fiscal solvency of the
United States, if we really do not want to end up like Greece
where people were rioting in the streets because of some of the
cuts that they had to do, then I would suggest that a balanced
budget amendment might be something to be considered.
Dr. Holtz-Eakin, do you have any--I saw you move your head.
Do you have any thoughts on that? And then I will yield back
here.
Mr. Holtz-Eakin. Well, I concur with the concern over the
fiscal outlook.
I just want to have a point of clarification in this
discussion. Social Security will be cut. When the disability
fund exhausts, disability benefits will be cut down to whatever
revenues are coming in. When the retirement fund exhausts,
Social Security will be cut across the board. So there is
nothing about a balanced budget amendment that changes the
future for that program. It is going to be cut because Congress
has failed to enact a sustainable Social Security program. So
this notion that somehow it is only endangered by a fiscal rule
that makes the rest of the budget add up is just wrong.
Mr. Franks. But there may be a difference in cutting it
reasonably or cutting it precipitously because of a----
Mr. Holtz-Eakin. I concur with that. At least cut it
reasonably.
Mr. Primo. Just 10 seconds. Whatever changes we need to
make, if we make them today, they will be less painful. I think
that is the key message.
Mr. Franks. All right. So a balanced budget amendment is
the perfect political anesthetic. All right.
So now I would turn to Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman. And I want to
apologize to the witnesses for not being able to be with them
for the full period of this important hearing.
But Social Security taxes could be covered and not cut by
merely raising the Social Security tax. Is that not correct,
Dr. Aaron?
Mr. Aaron. Yes. I was going to comment on the previous
discussion, which seems to me to be wrong in a number of
respects.
First of all, a balanced budget amendment would require no
action whatsoever with respect to Social Security, which is
currently running a surplus and accumulating additional
reserves. The program does, indeed, face a long-term projected
deficit, and I fully agree with Professor Primo that early
action to close that projected deficit is desirable in order to
phase in changes gradually.
But the observation you just made, Mr. Conyers, is also
correct. It is not the case that benefits have to be cut. Taxes
could be increased. And in that connection, I would report a
survey taken and released by the National Academy of Social
Insurance trying to find out what public attitudes were about
Social Security. The majority view of those surveyed was that
benefits should be increased and taxes raised enough not only
to cover the cost of those added benefits but also to close the
projected financing gap that we now confront. So if that poll
is reasonably accurate--and I have no reason to impugn it--if
that is the case, then the view of the American public is not
that benefits must be cut, but that the program should be put
on a sound financial footing and benefits should be at least
sustained.
Mr. Conyers. Thank you very much.
Dr. Primo, do you have any notion of what cuts might be
required to effect a constitutional amendment such as being
discussed here today?
Mr. Primo. The specifics of the changes that would need to
be made to programs I think is properly the purview of the
Congress. Without a doubt, changes need to be made, but many of
those will not necessarily be cuts but rather reductions in the
increases in growth of spending.
Mr. Conyers. Well, I feel a little bit better about your
response.
Let me see if Dr. Holtz-Eakin can help me here. Do you
concede that there may be cuts necessary if this amendment were
to be adopted, sir?
Mr. Holtz-Eakin. The budget is badly out of balance. So
mechanically one of two things is going to happen. Spending,
projected spending in particular, will have to be lower or
projected taxes and taxes will have to be higher.
I think an important feature about the reality of how this
would happen, if the Congress were to pass it and send it to
the States, is it would take years for ratification to occur.
That is a good thing from two perspectives. Number one, it
would require a lot of public education about what is going on,
and it would happen as a byproduct of the ratification process.
Number two, everyone in this chamber at that time would be
watching the day approach when things had to add up, and they
would have to anticipate that. And rather than doing it in a
single year in an abrupt and, quite frankly, damaging fashion,
it would be done in a smooth fashion over time. And I think
that is the right way for Congress to approach the problem.
Mr. Conyers. Thank you very much.
Let me turn again to Dr. Aaron. Proponents of a balanced
budget amendment claim that because States and families are
required to balance their budget, the Federal Government should
be required to do so too. Is this analogy a little bit
overworked or maybe inept?
Mr. Aaron. Well, in response to a prior question about
State balanced budget amendments, Professor Primo mentioned
that the Federal Government has responsibilities that States do
not have like the ability to declare war. But they have another
responsibility that is different from the States and that is to
combat recessions partly through fiscal policy, partly as a
responsibility of the Federal Reserve system.
Mr. Holtz-Eakin's statement about the gradualism with which
spending could be cut might be true in the run-up to
ratification. It emphatically is incorrect with respect to the
cuts that would be triggered by a balanced budget amendment
during a recession. Revenues fall. Spending would have to be
cut then or taxes increased unless, again, there was a three-
fifths majority of the entire membership of Congress to waive
those requirements. Those cuts could be very, very abrupt.
And as I said in my testimony, they create a possibility of
ransom by intransigent minorities seeking enactment of their
pet proposals. And I really think that is a danger that Members
on both sides of the aisle should take very seriously because I
think it is quite possible that one could get such efforts made
either on behalf of conservative or on behalf of liberal
policies that cannot command majority support but that could be
weapons during a fiscal crisis.
Mr. Conyers. I think the balanced budget amendment is still
no better an idea than when Newt Gingrich brought it to our
attention in 1994 in the Contract with America.
And I thank you all for your observations, and I yield back
any balance of my time that may be remaining, Mr. Chairman.
Mr. Bachus [presiding]. Thank you.
The gentleman from Texas, Mr. Gohmert.
Mr. Gohmert. Thank you. I appreciate your being here, your
testimony.
I have been contemplating what one of my friends across the
aisle had said earlier, that we should not be put into the
Constitution things that bind our successors. And then when I
contemplated every one of the amendments to the Constitution,
they do exactly that. They bind our successors, and thank God
they do. If those amendments did not bind our successors, we
would have no right to due process. We bound the government.
You cannot go after us. You cannot get our personal property,
our records without due process unless, of course, you are the
Consumer Financial Protection Bureau, the Federal Government
getting our medical records now under Obamacare, the NSA
getting all our emails and phone logs. But I digress.
I would suggest we are binding future generations right
now. We are binding our successors, forcing them to pay for
things they got no benefit from. We are the generation that is
engorging ourselves with things we cannot pay for and the
future generations will be bound to pay for.
I was one of four Republicans that voted against the
balanced budget amendment not because I do not support it. I
have been for it as far back as I can recall in college and
high school when we had debates over it. But what I have found
since I have been in Congress is if we do not put some kind of
bind on ourselves, our successors are going to be bound to an
extent that is untenable. We need a spending cap because to
have a balanced budget amendment without a spending cap forces
ever higher and higher taxes because we do not do a good job of
cutting, and that higher and higher taxes gets us into the
Laffer curve, which I do believe is supported by evidence in
economics. If you charge a 0 percent tax, you get 0 revenue.
You charge a 100 percent tax, you get 0 revenue because nobody
will work if every dime goes into the Federal Treasury. So
somewhere in between is a maximum effective rate. When you go
over that rate, you begin to get less revenue. You kill the
economy.
And it was Thomas Jefferson that said the natural progress
of things is for liberty to yield and government to gain
ground. As yet our spirits are free. Our jealously is only put
to sleep by the unlimited confidence we all repose in the
person to whom we all look to as our President. After him,
inferior characters may perhaps succeed and awaken us to the
danger which his merit has led us into.
Washington was selfless. We have not done so well since
then. We need to bind ourselves.
So I would ask you, having just seen Obamacare now limiting
seniors, as the President himself said at a town hall, we
probably need to tell the senior you are better off getting a
pain pill than a pacemaker that saves your life because we have
got to cut costs. Why? Because we have engorged ourselves with
a massive amount of government workers in health care.
So I think we have got to have a cap on spending as part of
a balanced budget, and I would like to ask each of you whether
you agree or--I am not asking whether you agree or disagree
with the spending cap. But if you were forced to provide a
mechanism for putting a cap on spending, what would it be? Dr.
Holtz-Eakin?
Mr. Holtz-Eakin. Well, if you were going for a spending
cap, I think it would have two important characteristics.
First, it would be a comprehensive spending cap. I do not think
you should pick particular categories in the budget and single
them out in advance. It should be applied equally. Second, it
should be measured relative to the size of the economy or
perhaps the economy per capita so that it adjusts to the
capabilities to support the Government automatically. And I
think those are the two key pieces.
Mr. Gohmert. Like GDP?
Mr. Holtz-Eakin. Yes.
Mr. Gohmert. Sir?
Mr. Aaron. I am not willing to play the game. I believe
this----
Mr. Gohmert. Sir, this is not a game to me. This is a
matter of life, of freedom for my children. I do not consider
it a game.
Mr. Aaron. I apologize for using the wrong word. But I am
not willing to----
Mr. Gohmert. So I thank you.
Our last witness please.
Mr. Aaron [continuing]. What I think would be----
Mr. Gohmert. Sir, I had a specific question. I am looking
for ideas for caps on spending.
Mr. Primo. I have some hesitation about putting a specific
cap on spending----
Mr. Gohmert. I understand that.
Mr. Primo [continuing]. Only for the reason that over time,
you might want to deviate slightly from that, but there are
ways to deal with that particular issue. But regardless of that
point, in terms of how you design it, you need to be very
specific about how you are defining terms within the context of
the amendments. Let us say you want to use GDP as a metric. The
amendment would need to be very clear about how we are going to
define those numbers. Otherwise, I am willing to bet any amount
of money, my retirement savings, that Congress will write
implementing legislation that will define the cap in such a way
that they can ignore the cap. And so I think the rule design
there is essential.
Mr. Gohmert. So no proposal. Just be careful. All right.
Thank you.
I yield back.
Mr. Bachus. Thank you.
Mr. Johnson from Georgia is now recognized.
Mr. Johnson. Thank you.
This balanced budget amendment has more to do with spending
than it does with raising revenue. And so it is really an
attempt to ensure that Government spending remains low.
Therefore, taxes can remain low. Now, who pays taxes? Not the
wealthy because they are the ones with all of the lobbyists up
here in Washington, D.C. to get their tax loopholes inserted in
our tax code, and that is what makes our tax code so unfair is
because the middle class and the working people are the ones
that are paying the taxes and the wealthy, the vulture
capitalists and the like, end up paying zero taxes. I know that
General Electric Corporation got tax refund checks of billions
of dollars.
So we are not collecting taxes from the wealthy, those who
can most afford to pay. So, therefore, without the money from
the wealthy paying their fair share and the middle class paying
the tax bill for things like the war in Iraq and Social
Security, Medicare, Medicaid, transportation, FDA, EPA, all of
the workings of Government, the IRS, these things that America
has been able to provide some degree of prosperity to
Americans, all Americans--these institutions, these agencies
are being dismantled because of costs. And a balanced budget
amendment would just usher along this period where you had less
Government, Government that would only be in place--Federal
Government be in place to deal with the wars that we decide we
want to create and handle off the books.
Under a balanced budget amendment, we would not have been
able to fund the cost of the Iraq War on these contingency
operations budgets that we arrive at and they are not paid for.
Is that not correct, Mr. Holtz-Eakin?
Mr. Holtz-Eakin. Most of the balanced budget amendments
would have required some sort of vote to declare war and have a
special ability to borrow to fund operations of that type.
Mr. Johnson. So when it comes to war, you would be able to
somehow defeat the balanced budget amendment, but not in a
situation where there was a catastrophe, let us say, a drought
like the dust drought back in the 1920's and 1930's and there
was a need for programs to help put people back to work, help
people who could not find jobs. You could not do that under the
balanced budget amendment. Correct?
Mr. Holtz-Eakin. You would have to cut other spending or
raise taxes to do it.
Mr. Johnson. Yes. So you can spend it for the military, but
you cannot spend it on the people.
How would we actually implement a balanced budget
amendment, should we be so unfortunate that it would pass, Mr.
Eakin? You are the economist, and that is why I am kind of
focused on you as opposed to you, respectfully, Mr. Primo.
Mr. Holtz-Eakin. It would fall to the Congress and the
Administration.
Mr. Johnson. Yes. Practically how could you implement a
balanced budget amendment in this day and time?
Mr. Holtz-Eakin. I am not sure I understand what the
question is, sir.
Mr. Johnson. Well, I mean, you vote for it. You are
advocating for it. We vote for it. We pass it. It gets sent to
the States. They pass it. Boom. It is the law. Now, how do we
implement it?
Mr. Holtz-Eakin. As I said earlier, I think the key would
be if it were to pass the House, the Senate, go to the States--
--
Mr. Johnson. How do we----
Mr. Holtz-Eakin. I am trying to answer, sir.
You would begin to recognize, as States ratify it, that
this was in fact going to be a binding constraint on future
operations of the Federal Government.
Mr. Johnson. Okay. How do we implement it? Now, you are
filibustering me, and we do not filibuster over here in the
House. They filibuster over in the Senate. I am just trying to
get a straight answer.
Mr. Holtz-Eakin. I may be answering it poorly, but I am
answering.
[Laughter.]
Mr. Johnson. How do we implement the balanced budget
amendment? What are we going to do? Stop some expenditures. Are
we going to get rid of Social Security, Medicare, Medicaid,
just cut that out and start paying for the military only? How
does it work?
Mr. Holtz-Eakin. I could not possibly answer that.
Mr. Johnson. Well, do you have any idea, Mr. Primo, how it
would work? Do you have any idea whatsoever?
Mr. Primo. So I do have a background in economics, by the
way, and it is telling that you wanted to focus on the
economics and not the political science of this because it is
the political science of this that is equally important.
Mr. Johnson. But do you not think this balanced budget
amendment is rooted more in politics as opposed to economic
theory?
Mr. Primo. A balanced budget amendment is rooted in
economic theory, but the implementation would be political. And
that is the key.
Mr. Johnson. Well, tell me how it would be implemented
since you have stepped up to the plate. How would you implement
a balanced budget amendment?
Mr. Bachus. The gentleman's time has expired, but I will
let him respond.
Mr. Primo. This is an important debate to have because I
think we have been seeing----
Mr. Johnson. Okay. You are filibustering me now.
Mr. Primo. I am trying to answer your question.
Mr. Bachus. Let him answer the question.
Mr. Primo. I do not have to answer the question. That is
your choice.
Mr. Johnson. Because you all do not let Mr. Aaron speak, I
am just treating you like they have treated Mr. Aaron.
Mr. Bachus. I was going to let Mr. Primo answer that last
question of yours. We are over about 10 minutes.
Mr. Johnson. Please do, sir. Please do.
Mr. Primo. So a smart way to implement any sort of
constitutional rule would be gradually over time, as Dr. Holtz-
Eakin has mentioned also. It is not like you say tomorrow,
okay, we are going to go from a deficit of 2 to 3 percent and
then all of a sudden we are going to go to 0 overnight. You do
it gradually. You do it smartly.
Mr. Johnson. How much time? 5 years, 10 years?
Mr. Primo. And so what I have noticed is that those who
disagree with a constitutional budget rule have a tendency to
focus on specific provisions that they do not like and then use
those as a way to sort of decimate the entire idea of a rule.
The key is that you design the rules carefully. I have argued--
and I am a supporter of a constitutional budget rule--that
design matters, and I would rather see no rule than a badly
designed rule. So if you have quibbles with----
Mr. Johnson. You have not told me anything, sir.
I yield back the balance of my time.
Mr. Bachus. There is no time.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Aaron. Mr. Bachus, would it be out of order for me to
respond or do you want to move on to the next question?
Mr. Bachus. Go ahead.
Mr. Conyers. You are a generous Chairman.
Mr. Aaron. I think one way of posing the question of the
gentleman is to ask what specifically would have been done had
H.J. Res. 1 or 2 been in effect during the most recent economic
slowdown.
Mr. Johnson. Well, that is a great question, sir.
Mr. Aaron. Let us talk some specific numbers. Revenues
dropped to 14 percent of GDP. Spending was over 20 percent--23
or 24 percent of GDP. Under those circumstances, H.J. Res. 1 or
2 would have required a massive tax increase or massive
spending cuts. It behooves those who support this amendment to
give us an illustration of which programs they would have cut
under those circumstances. And unless they are prepared to do
that, it is hard to take this proposal very seriously.
Mr. Bachus. Mr. Holtz-Eakin, you are the only one that has
not been able to respond. But thank you.
Mr. Holtz-Eakin. This is an important issue. It comes up a
lot. So let me say a couple things about it.
Number one, a sensibly designed constitutional budget rule
would have the provisions that in extreme economic distress,
the Congress could run deficits. And so the worst case
scenarios are not the right way to think about this.
Then there is just a tradeoff. It has been the case that
proponents have argued for running deficits as a way of
managing business cycles. I would argue the historic record of
our success in doing so has been quite poor. And the cost of
attempting to avoid this kind of discipline has been chronic
high deficits, chronic debt accumulation, and an endangerment
of both our financial and economic futures.
On balance, I think it merits going to the constitutional
rule because it is better than what we have done, and that has
been an excuse to run deficits in the name of doing better
economic policy. But the policy has not been that good. It is a
judgment call, and that is where I would come down.
Mr. Bachus. Thank you.
Mr. Marino, you have been very indulgent. Mr. Johnson took
10 minutes. So we have some time.
Mr. Marino. And you know, the thing of it is I sat here to
listen to Mr. Johnson, and then it is my turn and he takes off.
I am going to have a discussion with him in a moment.
[Laughter.]
Mr. Bachus. I liked the debate.
Mr. Marino. Gentlemen, I do recognize that you are all
economists and experts and very well respected in your field.
Dr. Aaron, I am not quite sure where you are coming from on
an issue. You say that let us talk about right now about what
we would do. There is no way that one could sit down right now
and say what we could do. I have put together an economic plan
concerning the balanced budget. I do support it. And that is
where we, both sides and the Administration, have to take--
probably it would take months, even maybe years to sit down and
go through each Department, each agency because we have to talk
about cutting significantly, increasing revenues, but cutting
significantly in Departments and agencies would increase
revenues. We have to talk about what impact creating more jobs
would have on revenues coming in. So there are so many
variables to this.
But you know something? I am new to Congress. I am in my
second term. And so I have not been privy to a time in Congress
where we have had surpluses. Now, in my reading, since the
Revolutionary War, we have always accumulated debt, and some
people do not know the difference between debt and deficit. And
we have had two Presidents at least in my lifetime that have
had some surpluses, but when they left office, they still
contributed to the debt, to the overall debt.
If we cannot agree on something as simple as legislation
that we are trying to pass even to create jobs, do you not
think we need something to force us, to make us sit down and
discuss the issues? Because if we have a constitutional
amendment and we do not fulfill that, you can bet we are not
going to be around in the next election because we have just
forfeited our responsibility.
There are 321 bills right now sitting in the Senate on
Harry Reid's desk that he refuses to take to the floor for a
vote. Can you imagine trying to sit down with that kind of
mentality and reach an agreement? Do you agree with me, Dr.
Aaron, that there are no indicators that the debt will not
continue to rise in the future?
Mr. Aaron. I do expect the debt to continue to rise in the
future. And in fact, recently I took a look at what the course
of debt was over U.S. history. To my surprise, I discovered
that we started the Nation with a sizable debt because
Alexander Hamilton said that we should not defray obligations
incurred during the Revolutionary War.
Mr. Marino. I understand that, but do not use up all my
time now. Please get to the point.
Mr. Aaron. There was a period when we paid off the debt
completely.
Mr. Marino. That was in 1833, 1834.
Mr. Aaron. Absolutely.
Mr. Marino. And then after that, boom, it skyrocketed
again.
Mr. Aaron. Well, it rose a little bit. The Civil War--it
rose a lot.
Mr. Marino. But let us talk about today, Doctor. Let us
talk about the debt today. It is skyrocketing at an alarming
rate. You did advise President Obama, and do you still advise
the President on economic issues?
Mr. Aaron. No. I have not been an advisor to President
Obama----
Mr. Marino. Okay. I thought you were.
Mr. Aaron. I have been nominated for an advisory board, but
that is all.
Mr. Marino. You should have been on that.
You suggest that we do rationing. Why can we not do
rationing, for example, in----
Mr. Aaron. No, I do not suggest that we do rationing.
Mr. Marino. Did you not write an article which suggested--
--
Mr. Aaron. I wrote a book. I wrote two books in fact on
health care rationing.
Mr. Marino. Well, why can we not ration in conjunction with
a balanced budget and preparing a framework? Like Dr. Primo
says, we cannot jump into--today we do not have a balanced
budget and tomorrow we do, and now it kicks into gear. There is
so much that has to be done to prepare for that.
The Constitution, Article I, Section 8, paragraph 1 says we
are supposed to pay debts. And we are getting to the point
where we cannot pay debts because we are approaching $18
trillion of debt. Now, every Administration and every Congress
over my lifetime is responsible for this. So now I am a
Congressman and I am responsible for it. But I do not see an
alternative here other than something forcing us absolutely by
a constitutional amendment to take this seriously. Whether that
involves a combination of matters, which I think it will be,
raising revenues and cutting spending, what is your alternative
other than that?
Mr. Aaron. My alternative is the sort of bipartisan
collaboration that occurred during the 1990's.
Mr. Marino. Have you not heard anything that I just said
over the last 15 seconds about bipartisan?
Mr. Aaron. May I respond to your question, sir?
Mr. Marino. Yes, you may.
Mr. Bachus. Yes, let him respond.
Mr. Marino. No. I am asking questions. He will have an
opportunity.
Did you not hear what I said a minute ago----
Mr. Aaron. I heard you perfectly, sir. I am trying to
answer.
Mr. Marino [continuing]. About 321 pieces of legislation on
the Senate's desk that they will not bring to the floor? Now,
how? Tell me the secret. Tell me the secret to getting the
Senate and the Democrats to agree to sit down and talk about
this.
Mr. Aaron. Talk about what, sir?
Mr. Marino. Just what you said, just what you talked about.
You wanted to make a response to--okay, this is the alternative
to balancing the budget. We cannot even get them to sit down
and talk about simple matters other than increasing the debt
limit, which the President was opposed to when he was a
Senator. So give me an example of how we are supposed to
persuade someone like Harry Reid to sit down and talk.
Mr. Aaron. I am not going to try to provide political
advice.
Mr. Marino. Well, then do not sit there and try to provide
some----
Mr. Aaron. I am trying to respond to you and----
Mr. Marino. You are not responding. You are not responding
to my question. You are not responding to my question.
Mr. Bachus. Gentlemen, I am going to give you plenty of
time.
Mr. Marino. Mr. Chairman, I am aware of that, but I am not
going to be two-stepped here. This gentleman sat and tried to
ridicule the Chairman on a piece of legislation. He did not do
his research and he was wrong on that.
Mr. Bachus. I understand. And, Mr. Marino, you have got
every right to ask questions.
Mr. Marino. Just answer my question, sir. How do you
propose the Democrats and the Republicans getting together and
reaching agreement on legislation other than a constitutional
amendment?
Mr. Aaron. I do not see how a constitutional amendment does
what you want.
Mr. Marino. You did not answer my question. Answer my
question of how we are supposed to do that.
Mr. Aaron. Sir, if you wish to engage in the practices of a
prosecuting attorney, I am not willing to respond----
Mr. Marino. And if you wish to engage as a defendant to
refuse to answer the questions, then I will.
I see my time is up. I yield back.
Mr. Bachus. Thank you.
Now it is my turn I guess. I do not know where to start.
What Mr. Marino--maybe another way to say it--and I will
maybe start with Mr. Aaron. What would be one of your
suggestions as an action to take to reduce the deficit?
Mr. Aaron. My response that I wanted to give before was
that we have a case study of successfully dealing with the
deficit. During the 1980's, we had a deficit problem that was
quite serious. Two successive Presidents, one Republican and
one Democrat, successive Congresses controlled alternatively by
Republicans and Democrats passed three deficit reduction bills
that actually produced 3 successive years of budget surpluses
and spending levels that were actually below 18 percent of GDP
at the end of the Clinton administration. Those surpluses
occurred immediately after the failure of the balanced budget
amendment to which reference has been made today. It was as if
Congress was giving a real-life demonstration of the way in
which responsible leaders of this Nation can and should behave
and showing that it is not necessary to embed in the
Constitution an amendment that is likely, in all forms that I
have seen so far, to be subject to gaming or abuse and that
would impose severe limits on congressional behavior during
emergencies.
I want to say I disagree strongly with what Doug Holtz-
Eakin said before. It is not what Congress can do gradually
over time if it has time to respond to the ratification of an
amendment. It is how the amendment is going to affect policy
during those unanticipated events when emergencies do occur.
That is the risk that I see in the current H.J. Res. 1 and 2.
Mr. Bachus. All right. Let me ask all three of you this.
You mentioned the actions that were taken actually under Carter
and Reagan to try to stem expenditures and the Social Security
disability fund. So I think all of you would agree that the
projection is that it will bankrupt by 2016.
Mr. Aaron. Disability insurance, yes. Old age and
survivors, sometime after 2030. We are going to get a trustee's
report I think early next week.
Mr. Bachus. Yes. But the projection now I think is 2016. So
we are talking 2 years. So we all agree on that?
Mr. Aaron. For disability insurance.
Mr. Bachus. Yes, the Social Security disability insurance
fund, trust fund.
Now, that was really what Reagan and Carter addressed
successfully. I mean, they did revise it. Now, there were some
problems with it too.
I took Brookings Institute, which you are familiar with.
You are with Brookings Institute. They did a study on Social
Security disability, saying it had to be addressed. One of the
things they said--and this is the Center for American Progress
in the Brookings Institute. While traditional medical causes of
disability, cancer, stroke, heart attacks, and the like, have
stayed relatively constant--those claims--Social Security
disability benefits have exploded for people with
musculoskeletal or mental disorders. They talked about that an
applicant can have a subjective claim that he is in pain or
mentally incapacitated and that sometimes that is enough to
have a claim paid. In other words, I got back pain. I am
depressed.
NPR has said that--they have said that diagnoses that lend
themselves to subjective manipulation--and this was in a study
of disability--like back pain and mental illness have grown
substantially.
So we have got a Democratic witness, two Republican
witnesses. Can we all agree that Social Security disability is
probably as urgent a matter that needs to be addressed by this
Congress now?
Mr. Holtz-Eakin. Agreed.
Mr. Primo. Agreed.
Mr. Aaron. I think it is the central issue in Social
Security that needs attention now.
Mr. Bachus. And, you know, some people are saying, well, we
might draw out of the retirement account. We might raise the
Social Security tax. We have got to do something.
And what bothers me about this is people that have
legitimate problems, cancer, stroke, heart attacks, Lou
Gehrig's disease--if we just reduce everybody's, we are not
taking care of these claims that even NPR--if you saw that on
TV, it was just--and I think Mr. Marino--that is part of his
frustration and mine, is that this is something that
bipartisanally we seem to agree that this thing is out of
control. And it is going to go bankrupt in 2 years, and we do
not do anything about that.
Now, I think that is part of the reason why we are saying
we cannot do the easy lifts.
And one other thing. There have been two different
studies--well, three or four, National Bureau of Economic
Research. But in the last 40 years, while the claims have been
going up, medical advances have made people healthier. So we
ought to be coming down.
Almost every study says now the aging population, but that
only accounts for 13 percent of the claims due to that. The
other are just an explosion, as NPR says, of disability claims
on subjective evidence.
Does anybody want to comment on that?
Mr. Primo. I would just note that your concern about this
particular aspect of Social Security--or the disability program
is suggestive of why we need constitutional reform. We lurch in
this country fiscally from crisis to crisis. Some of them are
micro-crises, as the one you have just described. Others, as we
saw a few years ago, were far more macro in nature. And in the
absence of a constitutional rule, it is always easy to just do
the small fixes or the temporary fixes or the fixes that might
get you 10 or 15 years. But you do not fundamentally alter
these programs.
And we have heard a lot today about the various times in
history where--sort of like a rainbow in the sky--we reached
agreement and we got a balanced budget in, say, the late
1990's. I mean, you had to hold onto that balanced budget tight
because it disappeared awfully quickly. And in the absence of a
constitutional rule, you can enact all the reforms you want
legislatively. In the absence of constitutional reform, you
might get a balanced budget for a year or 2. You might get a
little bit of fiscal responsibility for a few years. And then
you say, well, look, we are doing so well, we can afford to
spend more. The phrase that would be used would be ``invest
more.'' We have ``room to invest'' was a phrase that was used
last week by a Senator in response to the new budget outlook.
And so in the absence of constitutional reform, fiscal
responsibility becomes a justification for further spending,
which leads ultimately to fiscal irresponsibility. That is why
we need constitutional reform.
Mr. Bachus. Dr. Aaron, you mentioned had we had a balanced
budget amendment, we would not have been able to face the
crisis we went through in 2008. And then you went on to say
where we actually ramped up spending to $22 for every $14 would
be a simple way. For every $14 coming in, we were spending $22.
But, you know, that is pretty scary in and of itself.
Mr. Aaron. It is very scary over the long run.
I would like to respond on your observations about
disability insurance because I think I share with you real
concern about the current structure of the program. Like you, I
believe important structural reforms to the program are
necessary. It is hard to find a social insurance program more
complicated and more fraught with real difficulties as to how
it ought to be put together than disability insurance. That
does not mean that there is any excuse for neglecting it. It
is, rather, a reason why we should be turning to it now and
addressing it in a serious way.
But my point here is that a balanced budget amendment does
not promote that discussion any more than the fact that you
pointed to, which is that the trust fund is going to be
depleted in 2 years. The balanced budget amendment would have,
in effect, a broad brush requirement of either cutting taxes
or--pardon me--raising taxes or cutting spending. But when you
are dealing with a program like disability insurance, you are
dealing with something where you have to look at the
administrative processes by which people are determined
eligible or ineligible. You have to look at the facts that you
just described of a change in the medical indications for why
people get on the rolls. You need to look at the fact that
people who are denied eligibility have earnings history that
look pretty dismal. They do not go back to work. So these are
really tough calls, and that is the reason why there is a real
need for bipartisan collaboration to address this program. And
I do not think that is advanced in a material way by the topic
we are addressing today which----
Mr. Bachus. You know, any Government program where you can
qualify simply by saying I am eligible without any medical----
Mr. Aaron. You cannot do that with disability insurance.
Mr. Bachus. Well, you know, you cannot find a job within a
certain area and you have subjective back pain. Now, this is
according to Brookings Institute.
Mr. Aaron. I am not suggesting that this is a program
without instances of abuse. It is hard to find them. The tax
system has lots of instances of abuse.
Mr. Bachus. Well, I am glad that NPR--I am just saying that
would be an easy one. And I think that is why there is a
general frustration here.
Let me say this. Humphrey-Hawkins. I will close with this.
Ben Bernanke, appointed by two Presidents. That is the Federal
Reserve. And when he comes up here, he is hammered on keeping
interest rates low and doing things like that and criticized.
But he has come up here for 6 years, and I have asked him the
same question. What do we do? And he said you have to have
long-term structural changes in the entitlement programs, and
if you do it, he says it will have immediate economic
advantages. And he asked us to do that. It makes his job harder
because of all this money we are borrowing from foreign
countries. If he goes up on the interest rate, it is a problem.
Mr. Holtz-Eakin, or Doug, do you have any comment? Do you
agree with him that we have to have--and he said it needs to
start yesterday with long-term structural changes to our
entitlement program?
Mr. Holtz-Eakin. I do not think you would find any
disagreement on this panel on that fundamental problem.
Everyone I think has spoken pretty clearly with the importance
of moving early and getting this under control.
The disability insurance thing I think is the test of Henry
Aaron's preferred model, which is bipartisan structural reforms
to these mandatory spending programs. And I would be thrilled,
quite frankly, if that is the way that problem got solved and
if that was a successful model for dealing with the budget
outlook. I have come to the conclusion that in the brief
instances when that has happened, we temporarily got some
progress, but it slipped away quickly. And so you end up with a
balanced budget not as a first choice but as an acknowledgement
of reality.
Mr. Bachus. Almost every--American Cancer Society, all
these liberal groups, conservative groups, Fox TV, CNN, MSNBC--
they have all highlighted abuses in this program. And what
happens, sooner or later, we are going to have to raise
everybody's taxes. We are going to have to reduce people that
have terminal cancer, strokes, they are disabled, to pay for
it. And with unanimous--almost--you know, not on just some of
the minor things, but we cannot even do that.
Mr. Schweikert said mathematical bubble of delusion. You
know, Mr. Coffman was talking about entitlement spending at 59
percent of the budget.
Mr. Aaron. Mr. Bachus, this Nation is 230 or 240 years old.
It has gone through some rough patches in which there was
pretty intense partisanship and it was difficult to get
legislation enacted. I urge you to take a longer perspective.
We have gotten through this period with relative fiscal
responsibility averaged over that period without a balanced
budget amendment, and I might add the Constitution of the
United States was enacted to succeed the Articles of
Confederation which failed because it required three-fifths
majorities.
Mr. Bachus. Well, let me say this. Dr. Primo said this and
I agree with him, and Mr. Scott said this. The wrong kind of
balanced budget amendment where it starts requiring three-
fifths and two-thirds could actually work against us. So we
have to consider----
Mr. Primo. And there are ways to protect against that sort
of concern that was raised earlier. For instance, if you want
to allow for waivers of the constitutional rule, you could
require that that excess money--you amortize the payments over
10 or 15 years. So it is not that that just goes into the debt
and then we do not worry about it again. We say we are going to
commit to paying that back within 10 to 15 years. So you are
hamstringing future Congresses right there by building that in
as part of the waiver. And so that is going to make legislators
more hesitant to engage in that waiver because it is going to
force cuts very close in the future because you are going to
have to start paying that debt off essentially right away.
Mr. Bachus. Well, one of the so-called ``successes''--I am
using that word sarcastically--of Congress is to get around
PAYGO or caps. We have been very successful in that. you know,
everything can be an emergency.
I am going to recognize Mr. Marino.
Mr. Marino. Yes. I think the Ranking Member has a comment.
Mr. Conyers. I just have a unanimous consent request to
enter into the record a letter to all the members from the
Constitutional Accountability Center.
Mr. Bachus. And without objection, all Members' extraneous
material, including Mr. Conyer's offer, will be accepted into
the evidence.
[The information referred to follows:]
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__________
Mr. Bachus. Did you have a final comment, Mr. Marino?
Mr. Marino. Would you allow me a minute?
Mr. Bachus. Yes.
Mr. Marino. To just make a statement.
I had a telephone town hall last night and we took a little
poll, certainly not scientific. But 80 percent of the people in
my district, after I explained a little bit very briefly,
support a constitutional amendment to balance the budget
because they say we are not doing anything.
And I have done a lot of work with children over my
lifetime. I still believe with all my heart--and that is why I
am here--that this is the greatest country in the world. Great
people on both sides of this Committee and both sides of the
aisle. But it just breaks my heart to see my constituents and
hear of others--people are sick, physically sick, mentally ill.
They do not want to get out of bed in the morning because of
the shape this country is in. We have kids killing kids in
Chicago and in Los Angeles and other big cities. We have
children that are hungry. We have a lack of education in this
country. We better get our act together because we are better
than that.
I am a member of the NATO Parliamentary Alliance, and I
travel the world and talk to the other 27 NATO members. What
they say to me constantly is what is happening in the United
States. We look to the United States for leadership. There is a
void. And when I say leadership, I mean all of us. I mean the
White House. I mean the Senate. I mean the House. All of us.
So I apologize for my Sicilian temper getting the best of
me, Dr. Aaron. There was no malice intent. You are a brilliant
man. But it strikes a chord. I am frustrated and I get a bit
passionate about where I want my children to be and my
grandchildren to be and all other children in this country.
Thank you and I yield back.
Mr. Bachus. And I think what we hear from our
constituents--they are all scared. They are all frustrated, and
they do not think this is going to end well. Like I think one
of our congressional panelists pointed out, we did--you know,
Mr. Aaron, you mentioned World War II. But we started paying
that back as soon as the war----
Mr. Aaron. Actually what happened was there was inflation
and rapid economic growth. The debt did not go down. It shrank
relative to GDP, but it continued to grow.
Mr. Bachus. Well, we need rapid economic growth now.
Mr. Holtz-Eakin. Yes, we do.
Mr. Bachus. Thank you very much to all our panelists. We
appreciate your testimony. We are frustrated and we need a few
Sicilians when we get frustrated. We are going to have to have
some Members of Congress that are very upset. So thank you for
your testimony.
This concludes today's hearing. Thanks to all our witnesses
for attending.
Without objection, all Members will have 5 days with which
to submit additional written questions or additional materials
for the record.
This hearing is adjourned.
[Whereupon, at 12:35 p.m., the Committee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Supplemental Material submitted by David Primo, Ph.D.,
Ani and Mark Gabrellian Professor, University of Rochester
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Revision to the Prepared Statement of Henry J. Aaron, Ph.D.,
Bruce and Virginia MacLaury Senior Fellow, The Brookings Institution
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