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[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:24443.wais]
S. Hrg. 109-586
GUNS AND BUTTER: SETTING PRIORITIES IN FEDERAL SPENDING IN THE CONTEXT
OF NATURAL DISASTER, DEFICITS, AND WAR
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 25, 2005
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 10
WITNESSES
Tuesday, October 25, 2005
Hon. John Shadegg, a Representative in Congress from the State of
Arizona........................................................ 12
Hon. Charlie Stenholm, Government Affairs Advisor, Olsson, Frank
and Weeda, P.C., and Former Representative in Congress from the
State of Texas................................................. 15
Roger Pilon, Vice President for Legal Affairs, B. Kenneth Simon
Chair in Constitutional Studies, and Director, Center for
Constitutional Studies, Cato Institute......................... 20
Daniel J. Mitchell, McKenna Senior Fellow in Political Economy,
The Heritage Foundation........................................ 24
Alphabetical List of Witnesses
Mitchell, Daniel J.:
Testimony.................................................... 24
Prepared statement........................................... 80
Pilon, Roger:
Testimony.................................................... 20
Prepared statement........................................... 63
Shadegg, Hon. John:
Testimony.................................................... 12
Prepared statement........................................... 48
Stenholm, Hon. Charlie:
Testimony.................................................... 15
Prepared statement........................................... 55
APPENDIX
Chart submitted by Senator Coburn entitled ``Burden of Government
in the E.U. and the U.S.''..................................... 8
Chart submitted by Senator Carper entitled ``Closing the
Hurricane Gap''................................................ 9
Article entitled ``Getting Serious About Deficits?'' by Robert
Greenstein, Center on Budget and Policy Priorities, October 6,
2005, submitted by Senator Carper.............................. 37
GUNS AND BUTTER: SETTING PRIORITIES IN FEDERAL SPENDING IN THE CONTEXT
OF NATURAL DISASTER, DEFICITS, AND WAR
----------
TUESDAY, OCTOBER 25, 2005
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:42 p.m., in
room 342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF CHAIRMAN COBURN
Senator Coburn. The Subcommittee hearing will come to
order. Senator Carper will be here. We have had a vote on the
floor and I apologize to our witnesses as well as our guests
for our tardiness.
Where we are--the need for priority setting. We are a
Nation at war. We face trillions of dollars in unfunded
liabilities of our entitlement programs. As a matter of fact,
the unfunded liabilities now exceed the private net worth of
the United States. We are recovering from the worst natural
disaster in our Nation's history. Since 2001, the non-defense,
non-homeland security government spending has increased 32
percent. Since 1998, it has grown 70 percent. Last year alone,
we heaped another $2,000 per man, woman, and child in this
country onto the Federal debt, individual share. The year
before that, it was $1,700.
The problem addressed in this book, which is written by
Peter Peterson, called ``Running on Empty,'' argues that the
appetite for spending is a fiscal train wreck waiting to
happen. Well, it is here and it is time we started doing
something about it.
When I visit with Oklahomans, they make it clear to me that
they are losing patience with the cavalier way that we
sometimes are spending their hard-earned money. There is a
rumble brewing outside Washington. Americans get it. The
American people understand unrestrained government growth is
endangering the future quality of life for their children and
grandchildren. Unlike their elected officials, they do get it.
They know that when unexpected financial obligations arise,
priorities must be set. We are at that stage now as a Federal
Government.
I will never forget, as a freshman Member of Congress, I
went to a budget hearing with Congressman Stenholm and we
talked about priorities. Even though he was on the other side
of the aisle, we both got it then and I appreciate him coming
today. I will never forget my time in front of your committee.
They know that sacrifices must be made, yet Congress seems
to live in an alternative universe, where it is OK during the
time of war and natural disasters to defend earmarks for things
like sculpture gardens in bills that are intended to reduce
homelessness for humans, and that is just last week.
The General Welfare Clause of the Constitution could not be
more clear about the finite powers of the Federal Government.
When the Founders wrote in Article I, Section 8 that the
government is to provide for the common defense and general
welfare of the United States, they were not intending to create
a nanny State that controls the lives of citizens from cradle
to grave. In case there was any confusion, the Tenth Amendment
should have cleared things up. The powers not delegated to the
United States by the Constitution nor prohibited by it to the
States are reserved to the States respectively or to the
people.
The Founders worried that abuse of the General Welfare
Clause would lead to too much government. Thomas Jefferson, one
of my heroes, wrote, ``Congress had not unlimited powers to
provide for the general welfare but were restrained to those
specifically enumerated, and it was never meant they should
provide for that welfare but by the exercise of the enumerated
powers.'' James Madison argues in the Federalist Papers that
the enumerated powers are the finite list of Federal powers
provided by the General Welfare Clause--the end of Federal
authority, not the beginning.
Former Assistant Attorney General Charles Warren in 1932
complained that Members of Congress saw themselves as Santa
Claus. He actually wrote a book, ``Congress is Santa Claus,''
very interesting reading if anybody wants to go to sleep at
night reading some interesting history. It seems that the
problems we face today were the same problems that he described
in 1932. He thought that the Congress was frivolously abusing
the General Welfare Clause. He blamed this attitude for the
rapid growth of government, including appropriations, and this
is his words, ``for any specially favored class, section, or
interest which can secure a sufficient number of votes in
Congress by appeals to philanthropy, by sectional bargainings,
or by insistence on class privilege.''
Federal spending at our current rate is unsustainable.
Discretionary spending has increased, as I noted. What is more,
one-quarter of total government spending now goes towards
overhead. One-quarter of the $2.5 trillion Federal budget is
staggering. A service sector industry such as the commercial
printing industry spends roughly 10.7 percent on overhead. Why
should publicly provided services require so much more in terms
of bureaucracy to deliver than privately-funded services? I
have argued repeatedly that today's Federal spending is not
only irresponsible, but it is immoral.
The uncontrolled growth of government is responsible for
the tanking of economies and quality of life for citizens of
nations all over the globe. This poster shows the burden of the
government in the U.S. and E.U. Let us look at one example,
Germany, though there are many others, 49.4 percent of
Germany's GDP is taken up now by government spending. What are
the consequences of that? Their unemployment rate is almost 11
percent. Their per capita GDP now is $11,400 lower than that of
the United States. The U.S. per capita economic output is 30
percent higher than Germany's. GAO's extended baseline model
shows us hitting 50 percent of GDP in the year 2060 in our
country. When today's high school students retire, they will
face the same economic problems faced by Germany today. This is
no gloom and doom prophecy, it is simply a matter of
mathematical fact.
Controller General David Walker writes in ``Saving Our
Nation's Future'' that last year, the government spent at a
rate which averaged more than $1 billion per day. We are
kidding ourselves if we think we are immune from most of
Europe's fate.
In the early 19th Century, Congressman Davy Crockett of
Tennessee took to the floor to argue against a bill that would
have granted money to the benefit of a military widow. I hope
you will indulge me as I read his statement into the record.
This is just a portion of his learning from one Horatio Bunge.
``Mr. Speaker, I have as much respect for the memory of the
deceased and as much sympathy for the sufferings of the living,
if suffering there be, as any man in this House, but we must
not permit our respect for the dead or our sympathy for a part
of the living to lead us into an act of injustice to the
balance of the living. I will not go into an argument to prove
that Congress has no power to appropriate this money as an act
of charity. Every member upon this floor knows that we have the
right as individuals to give away as much of our own money as
we please in charity, but as Members of Congress, we have no
right so to appropriate a dollar of the public money.
``Some eloquent appeals have been made to us upon the
ground it is a debt due to the deceased. Mr. Speaker, the
deceased lived long after the close of the war. He was in
office to the day of his death and I have never heard that the
government was in arrears to him. This government can owe no
debt for services rendered and at a stipulated price. If it is
a debt, how much is it? Has it been audited and an amount due
ascertained? If it is a debt, this is not the place to present
it for payment or to have its merits examined. If it is a debt,
we owe more than we can ever hope to pay, for we owe the widow
of every soldier who fought in the War of 1812 precisely the
same amount.
``There is a woman in my neighborhood, the widow of as
gallant a man as ever shouldered a musket. He fell in battle.
She is as good in every respect as this lady and is as poor.
She is earning her daily bread by her daily labor. But if I
were to introduce a bill to appropriate $5,000 or $10,000 for
her benefit, I should be laughed at and my bill would not get
five votes in this House. There are thousands of widows in the
country just such as the one I have spoken of, but we never
hear any of these large debts to them.
``Sir, this is no debt. The government did not owe it to
the deceased when he was alive. It could not contract it after
he died. I do not wish to be rude, but I must be plain. Every
man in this House knows it is not a debt. We cannot, without
the grossest corruption, appropriate this money as the payment
of a debt. We have not the semblance of authority to
appropriate as a charity.
``Mr. Speaker, as I have said, we have the right to give as
much of our own money as we please, and I am the poorest man on
this floor. I cannot vote for this bill, but I will give one
week's pay to the object, and if every Member of Congress will
do the same, it will amount to more than the bill asks.''
I am pleased to report that Congressman Crockett prevailed
that day, changing the mind of the majority of his colleagues
who had been planning to vote for the measure. I hope that that
same integrity will prevail in this body, as well.
[The prepared statement of Senator Coburn follows:]
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Senator Coburn. I want to thank our witnesses for being
here today and I look forward to your dialogue.
I would now like to recognize my Ranking Member and friend,
Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. It is great to be
here with you and it is also a special privilege to be here
with our former colleague, Charlie Stenholm.
Congressman Stenholm and I had the pleasure of working
together along with Larry Craig when we were all in the House
to draft the Balanced Budget Amendment to the Constitution, not
one that mandated a balanced budget every year but one that
said, starting at a date certain, the President had to propose
a balanced budget and to say that the Congress could vote to
unbalance the budget, but you would need a majority to do that,
three-fifths vote, and a super-majority to raise the debt
ceiling. I think we got within about a dozen votes of getting
that through the House of Representatives.
Later, Congressman Stenholm and I worked on passing the
first, I call it statutory line item veto bill that enhanced
the recision powers of the President and served as almost a
test drive, if you will, for line item veto powers for the
President, the first one, I think, that ever passed the House.
It didn't make muster here in the Senate, or at least not that
year, but I know he has continued to be a champion for that
proposal and all kinds of fiscally responsible measures.
I thank our other witnesses for their presence here and
look forward to each of your testimonies.
Mr. Chairman, I am grateful that we are having this hearing
and thank you for chairing it.
We recently got some good news about our Federal budget
deficit. About 2 weeks ago, we learned that the Federal budget
deficit for 2005 was only about $319 billion--I put that
``only'' in quotes--rather than the $400-plus billion that some
had expected at the beginning of the last budget cycle. That
was the good news, only $319 billion. The bad news is that a
$319 billion budget deficit actually passes for good news in
the environment in which we are operating today.
This year's budget deficit for 2006 may well be even
larger, some say as much as $400 billion, and beyond next year,
the story will be much the same, larger budget deficits adding
to a growing national debt, particularly as guys like me, baby
boomers, as our generation moves toward retirement and puts a
real stress on spending in this country.
How did the Federal budget end up in a ditch just when a
little more than 4 years ago, we enjoyed budget surpluses for
as far as the eye could see. I think it is really fairly
simple. In terms of total government outlays under the current
Administration, we have spent more, I think, than any
administration, any Congress in the last 35 years, at least in
the time I have been following these developments. At the same
time, the Bush Administration is pushing billions of dollars in
tax cuts, some unwise, thus reducing our revenue base. Today,
it is down to about 17.5 percent of GDP, which I think is the
lowest since a bunch of us have been alive.
The bottom line is that we are spending more than we are
taking in, and as any family would tell us, that is a recipe
for a budget that is out of balance, whether it is for a
Federal Government or for a family.
During my years in public service, I have always tried to
reconcile my position on fiscal issues with the basic tenet
that if something is worth doing, it is worth paying for.
Unfortunately, neither the Bush Administration nor this
Congress is following that principle. Instead, we are doing a
lot and paying for too little of it. We are fighting wars
today, as we know, in Afghanistan and Iraq. We are dealing with
the aftermaths of Hurricane Katrina and Rita and soon Hurricane
Wilma. We are implementing a new drug benefit for senior
citizens and paying for recent tax cuts with money that we are
borrowing from countries like China, like Japan, like South
Korea, just to mention a few. In a sense, the world is paying
our bills.
This can't last. We have to someday begin to pay our
creditors back. If we don't change our fiscal ways, it is
likely that our children and grandchildren will be the ones who
are going to be asked to do that paying back.
Getting our budget back on a path to balance will require
this Administration and Congress to make tough decisions, which
we have been reluctant to do at least to this point in time.
But before we can make--and really, not just difficult
decisions, but really calling on the American people and
ourselves to do some shared sacrificing.
Before we can make those decisions, it is essential that
the White House and the Congress first admit to the size and
scope of our budget problems. Once that has been done, it will
be clear that we can't fix our budget problems by focusing
either only on spending or only on the tax side of the ledger.
Everything will have to be on the table, our tax policies,
discretionary spending, defense spending as well as domestic
spending, mandatory spending, and, I think, the budget process
itself.
Until that time, Democrats and Republicans should come
together and do everything in our collective power to ensure
that the problem that we have inherited, in some cases made, is
not made worse.
My friends, I think we are in a hole. Some of you remember
the former Chancellor of the Exchequer, a guy named Dennis
Healey. He used to talk about the theory of holes, and the
theory of holes, as you may recall, is when you find yourself
in a hole, stop digging. And to that end, I think we should get
serious about budget enforcement. We should reinstate the pay-
as-you-go rules that require spending increases and tax cuts to
be paid for by either cutting spending or raising revenues. And
I am confident that both sides of the aisle can also agree to
once again put in place caps on discretionary spending.
Mr. Chairman, thank you again for calling this hearing. I
am delighted to be here sitting next to you and especially
pleased to welcome our witnesses, including our old colleague
here, Charlie Stenholm.
Senator Coburn. Thank you, Senator Carper.
Let me introduce our witnesses, if I may. The first
gentleman, I have known since 1994, who has become a close
friend of mine. I tried to get him to live with me, but he is
so tight, he lives in his office, and so he wouldn't share the
cost of that. It is Congressman John Shadegg. He represents the
Third District of Arizona. He got up very early in the morning
to get here from Arizona to be here for this hearing and I want
to tell him personally how much I appreciate him doing that. He
is the author of the Enumerated Powers Act in the House. As a
member of the Republican Study Committee, he currently chairs
the House Republican Policy Committee.
Next is Congressman Charlie Stenholm, Government Affairs
Advisor for Olsson, Frank and Weeda, P.C. He represented the
17th District of Texas for 26 years in the U.S. House of
Representatives. He was Chair of the Blue Dog Coalition and a
man of immense integrity and honor that I have felt fortunate
to serve with.
Next is Dr. Roger Pilon, Vice President for Legal Affairs
and founder and Director of the Center for Constitutional
Studies at the Cato Institute. He founded the Center for
Constitutional Studies at the Cato Institute in 1989 and he
holds the B. Kenneth Simon Chair in Consitutional Studies.
Prior to joining Cato, he held five senior posts in the Reagan
Administration, at the Office of Personnel Management, the
State Department, and the Justice Department.
And last but not least is Dr. Daniel J. Mitchell, McKenna
Senior Fellow in Political Economy at The Heritage Foundation.
He is the chief expert on tax policy and economy at Heritage.
He is a former Finance Committee economist under Senator Bob
Packwood. He is also an expert on economies of member countries
of the European Union.
I welcome each of you. We will start with Congressman
Shadegg. There is not going to be a time limit on your
testimony. We have read your testimony. We appreciate it. Feel
free to expand on that and then we will have some questions for
you, if that is OK with the Ranking Member.
Congressman Shadegg.
TESTIMONY OF HON. JOHN SHADEGG,\1\ A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ARIZONA
Mr. Shadegg. Thank you, Senator. I appreciate the
opportunity to be here to discuss both the Tenth Amendment and
the legislation I have in the House, the Enumerated Powers Act.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Shadegg appears in the Appendix
on page 48.
---------------------------------------------------------------------------
I understand that before I arrived--I arrived as soon as I
landed--you had already read parts of the story of Davy
Crockett and his floor speech and his experience out with his
constituents who taught him a lesson that I think has been lost
on Members of Congress and, indeed, lost on the public in
America, and that is a great story. It is incorporated in its
full length in a ``Dear Colleague'' that I have circulated for
years in the House in my efforts to secure support for the
Enumerated Powers Act.
I also note that you have up here some quotes from Thomas
Jefferson and the language of the Tenth Amendment, all of which
are in my testimony. I am going to summarize some of my
testimony rather than read all of it and just hit the key
points. I would like, of course, the entire testimony be
included in the record.
As you have noted by putting it up, the Tenth Amendment
provides that the powers not delegated to the United States by
the Constitution nor prohibited by it to the States are
reserved to the States respectively or to the people. That is
language that is, as I indicated, I think lost on most
Americans. In other words, the National Government cannot
expand its legislative authority into areas reserved to the
States or to the people.
As the final amendment of the Bill of Rights, the Tenth
Amendment makes it clear that the Constitution established a
Federal Government of delegated, enumerated, specific powers
and thus created a limited government. The notion today that
the Federal Government can do anything people want it to do is
simply wrong.
As a result of that, every Congress since the 104th, I have
introduced, as you noted, the Enumerated Powers Act. It is a
simple piece of legislation which perhaps by its simplicity
scares Members of Congress too much. It simply says that every
bill introduced by a Member of Congress or a Member of the
Senate into the U.S. House or U.S. Senate would have to contain
a statement citing the specific enumerated power granted to
Congress to legislate in that particular area.
Quite frankly, Article I, Section 8 sets forth those
enumerated powers. There are 18 set forth. In trying to secure
passage of the legislation, I am often asked by people who
review it, ``Well, Congressman, how would we justify,'' and
then they cite some law already in place, and my answer is
typically, simply because we have been doing things wrong, in
violation of oath of office, for that matter, for years,
doesn't mean we should go on doing them.
A lot of people think the Tenth Amendment is a dead letter.
I would remind this Subcommittee, and I know my colleagues here
at the panel already know, as recently as 1996, in United
States v. Lopez, the U.S. Supreme Court ruled that Congress did
not have the authority to pass certain legislation. The
legislation specifically under review at the time was the gun-
free schools legislation. Although many can argue that such
zones may be a good idea, what the Supreme Court concluded was
that Congress simply lacked the power under the U.S.
Constitution to mandate gun-free school zones. It determined
that even the Interstate Commerce Clause did not give it that
authority or that power. As you know, the Interstate Commerce
Clause is cited quite often as a rationale for much of what we
pass.
In his, I think, famous book, the conscience of the
conservatives, Senator Goldwater, explained what he felt his
duties were. One of them was, and I cite this in my testimony,
``I will not attempt to discover whether legislation is needed
before I have first determined whether it is constitutionally
permissible.''
I think United States v. Lopez reminds us that is an
ongoing obligation. Justice Kennedy concurred in the opinion
and he wrote, ``It would be mistaken and mischievous for the
political branches to forget that the sworn obligation to
preserve and protect the Constitution in maintaining the
Federal balance, that is, respect for the powers reserved to
the States and for the powers reserved to the people, is
theirs, that is, is the legislative branch's, in the first and
primary instance.'' That is to say, what Kennedy was saying to
us is we have an obligation as a legislative body to fulfill
our oaths and to honor the Constitution and to honor the Tenth
Amendment and its prohibition.
Simply put, when the Founding Fathers wrote our
Constitution, they created a National Government with far-
reaching powers, but with constitutionally limited powers, and
they believed that granting specific rather than general
legislative authority to the Federal Government would be one of
the ways to control the mechanisms and to protect our freedom.
I think it is worth noting that when the Constitution was
written, there had been a very extensive debate about what
should the role of the Federal Government be, and indeed, the
Founding Fathers spent a lot of time writing out in detail what
that role should be. Today, unfortunately, we have totally
forgotten it.
For the first 150 years of our history, from 1787 to 1937,
the National Government was itself, the Congress was itself the
bulwark against an expansive Federal Government legislating in
all kinds of areas that it felt like. Unfortunately, that
restraint demonstrated by those early Congresses has all but
been totally abandoned in this century and in the immediately
preceding century. Beginning with the New Deal era, modern
Congresses have displayed a willingness to pass any kind of law
that they feel like.
I think it is worth nothing that virtually all of these
laws, whether they are civil rights or labor or environmental,
you name it, are always, indeed, I would agree in every single
instance they are well intentioned. But the point is that
simply from a constitutional perspective, Congress does not
possess the authority to enact them. Indeed, that authority is
specifically reserved for the States or perhaps to the people
themselves.
Nonetheless, we as a government have ignored the
Constitution and expanded the authority of the Federal
Government into every aspect of human conduct. The size and
scope of our National Government has exploded over the past
seven decades, as was noted here in the opening remarks, and
many even doubt whether there is any life in the portion of the
Constitution which restricts our powers. Yet the belief that
the central government should have only limited powers remains
alive in the hearts of many Americans who believe that people,
not government programs, hold the answer to our Nation's
problems.
I would note that I think right now, when we are confronted
with a Federal Government out of control and we are confronted
with spending at a level unimagined in even just recent years,
just recently ago, Mr. Chairman, as when you and I were elected
to the House, in the wake of Hurricane Katrina and at a time
when Federal spending has ballooned to an unsustainable level,
I think this is a perfect time to hold this hearing. It is a
perfect time to cut back on some of the spending that occurs in
Washington on programs wrongfully undertaken by the Federal
Government, clearly outside the scope of our constitutional
authority, and I would urge that we should institute a system
something like that contemplated by the Enumerated Powers Act
that simply forces Congress to reflect on whether or not
legislation which is proposed, in fact, fits within our powers.
Today, many Americans, and I think you can see this
particularly in the wake of the hurricanes, not only expect the
Federal Government to solve all their problems, it has never
even occurred to them that the Federal Government does not have
under our Constitution the authority to do that. I think one of
the most important things this Congress could do would be to
honor and abide by the principles embodied in the Constitution,
no more, no less, and to respect the Tenth Amendment as it was
written and to respect the division of power between the
Federal Government, the States, and the people.
It seems sad to me that many of our governors don't
exercise or demand that we exercise their authority or ours.
They could be pointing today to the Tenth Amendment and to the
Enumerated Powers Clause of the Constitution and saying the
Federal Government can't legislate in these areas. Instead,
what they are doing is demanding that the Federal Government
spend more and more and more and legislate in all those areas.
I would conclude, Mr. Chairman, you have put up a quote
from Thomas Jefferson. I want to conclude with one--I concluded
my written testimony with a quote from Senator Goldwater. I
will conclude my testimony here with one from James Madison,
the Father of the Constitution. Often, the provision that is
cited by those who want to justify Congress legislating in any
area it feels like is, of course, the General Welfare Clause.
James Madison, the Father of the Constitution, said, ``If
Congress can do whatever in their discretion can be done by
money,'' the point that was made here, ``and will promote the
general welfare, then the government is no longer a limited
one.'' Thomas Jefferson went on to say, ``Congress does not
possess unlimited powers to provide for the general welfare,
but we are restrained by those specifically enumerated.''
It seems to me that if the Framers intended the General
Welfare Clause to have the interpretation that current
Congresses put on it, they could have spared themselves
considerable grief and contentiousness in that hot, humid
summer in Philadelphia of 1787 and they could simply have
written, ``Congress shall promote the general welfare.'' They
did not do that. They intended a different result, and the
consequences, I think, are damaging our Nation today.
I would be happy to answer any questions.
Senator Coburn. Thank you, Congressman Shadegg. Congressman
Stenholm.
TESTIMONY OF HON. CHARLIE STENHOLM,\1\ GOVERNMENT AFFAIRS
ADVISOR, OLSSON, FRANK AND WEEDA, P.C., AND FORMER
REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. Stenholm. Thank you, Mr. Chairman. Mr. Chairman and
Senator Carper, it is indeed a pleasure for me to be here and
thank you for affording me the opportunity to testify before
you today on the subject of which you have asked the question
asked by this hearing, how can Congress justify spending
billions of taxpayer dollars on wasteful and ineffective
programs when we are a Nation at war, recovering from the worst
natural disaster in our history, already stretched thin by
record non-military spending?
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Stenholm appears in the Appendix
on page 55.
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It virtually answers itself. We can't. The fact that such a
question even has to be asked at a Congressional hearing
underscores just how far we have strayed from the path of
fiscal responsibility.
It should be equally obvious that we can't keep cutting our
revenues as we face higher expenses for war and disasters. As a
longtime advocate of pay-as-you-go budgeting, it is heartening
to hear talk again about offsetting the costs of legislation to
prevent the deficit from increasing. Unfortunately, the
leadership in Congress didn't rediscover the common sense
principle of pay-as-you-go until after enacting legislation
that added several trillion dollars to our Nation's debt. Even
now, the leadership continues to apply the principle
selectively.
I applaud the efforts that many of you have made to find
offsets for the cost of disaster relief in the Gulf Coast.
However, to me, it is far more important that Congress offset
the cost of legislation that will have a permanent impact on
the long-term budget outlook. Focusing on offsetting the one-
time temporary cost of disaster relief while ignoring the cost
of legislation that will permanently increase the deficit by a
much greater amount over the long term makes no sense.
I would like to believe that the leadership in Congress has
undergone a conversion on the road to Damascus in fiscal
policy, but the refusal to reconsider legislation enacted over
the last several years which has led to our current deficit
situation and the insistence on moving forward with tax cuts
and other legislation that would increase the deficit casts
doubt on the seriousness of their newfound concern for the
deficit.
It is true, when we start talking about the deficit, it is
true that our Nation has faced unexpected emergencies that have
contributed to the deficit, but that is not an excuse for
running deficits. Many of us warned that the anticipated budget
surpluses just a few years ago were only projections and that
it was dangerous to make commitments using all of the projected
surpluses without leaving any room for error. We warned that if
the projections didn't turn out exactly as hoped, we would
return to deficits. We should have set aside some of the
projected surplus as a cushion to prepare for unanticipated
costs.
Defenders of our current economic and fiscal policies have
argued that deficits don't matter. You notice that I said
``we'' because I was part of those votes up until December of
last year. The reality is, though, that deficits do matter. It
has been mind-boggling to me to hear some of my conservative
friends, that when the shoe was on the other foot, we were
talking about how bad the deficits were, to suddenly now say
deficits don't matter anymore. The reality to me is that
deficits do matter, both for our economic security today as
well as the future we leave for our children and grandchildren.
Our increased reliance on foreign capital to finance our
deficits places our economic security at the mercy of global
bankers and foreign governments. Large deficits financed by
borrowing from foreign investors are also a major factor
contributing to the trade deficits which we are now exporting
jobs at a very rapid rate.
We need to keep the value of the dollar high in order to
attract the foreign capital we need to finance our debt. If the
value of the dollar declines, U.S. bonds will be less valuable
to foreign investors, but the strong dollar we need to help
Treasury finance our budget deficit hurts our business by
making U.S. exports more expensive. Round and round we go.
Deficits do matter. Our current borrow-and-spend policies,
to me, are worse than the tax-and-spend policies of the older
days. When you tax and spend, you are politically accountable,
and I love the sign up here talking about accountability. When
you vote to tax people to do, as my colleague Mr. Shadegg says
here, when you vote to do things that some decree as being
unconstitutional, there is accountability and you pay for that
at the ballot box, or at least you should. But when you borrow
and spend, there is no accountability.
My three grandchildren, my three grandsons, don't have a
vote on what I did when I was in the Congress or what you will
do this year in the Congress and that is where the
accountability is. Our grandchildren do not have a vote. That
is why it is so easy for us to say today we can fight two wars,
fund homeland security, fight the war on terrorism, rebuild the
Gulf Coast, and keep cutting our taxes, because we are going to
send the bill to our grandchildren.
It is neither fiscally responsible nor politically viable
to make cutbacks in some areas of the budget in the name of
deficit reduction while exempting other areas. If we really
want to get serious, everything has to be on the table,
everything. Otherwise, you will never get there. It is neither
fiscally responsible nor politically viable to make cutbacks in
some areas while exempting others. It will take everyone
pulling to get the wagon out of the ditch. We won't be able to
get it out if some people are riding.
The first step in bringing the deficit under control is to
stop digging the hole deeper. I used to give that quote. I am
glad to know who should have the credit for that. I used to say
it was either Confucius or Garfield, but----
Senator Carper. Congressman, I used to attribute it to you.
I found out it was Dennis Healey.
Mr. Stenholm. Well, that is dangerous around here.
Rhetoric about controlling the deficit by offsetting
increased spending doesn't have much credibility when Congress
continues to go forward with plans to add additional tax cuts.
Now, there will be those that argue that--and we have now
enacted three tax cuts based on the theory that tax cuts will
stimulate the economy, and some of them do, no question about
that, and pay for themselves as a result of economic growth.
There is a big question about that. As one who voted for the
Reagan tax cuts in 1981, I also remember the tax increases of
1982, 1983, 1984, 1985, and 1986 in which we adjusted, in a
bipartisan way, we adjusted for the economy to avoid building
the deficits to alarming heights. Today, we don't worry about
$300 billion, $400 billion deficits.
Each time, advocates of the tax cuts dismissed warnings
about the impact on the deficit, yet the deficit continued to
grow. Although some advocates of tax cuts have claimed that
recent reports showing higher than expected revenue collection
last year is evidence that the fiscal policies of the last 5
years are working, the reality is that the recent increase in
revenues just partially begin to restore the decline in
revenues over the last several years.
There are many reasons that actual revenues have been much
lower than Congress and the Administration projected when the
tax cuts were enacted, but clearly, those tax cuts have not
paid for themselves and have been granted with borrowed money.
So my first point is, you have got to put everything on the
table. Any serious effort to restore fiscal deficits should
begin with reinstating the pay-as-you-go budget, already
mentioned by Mr. Carper and by you, Mr. Chairman. It is a darn
good idea. It is very simple. If you are going to spend for
anything, you have got to find someplace to cut. But why we
have selectively stopped doing what we did successfully in 1990
and 1997 in which everything was on the table, including if you
are going to cut taxes, you have got to cut spending first or
find other revenues to replace that so the deficit does not
grow large.
For some reason, and I would say, with all due respect to
my republican friends, that if you are sincere in what you say
about controlling spending, you should not have a problem with
reinstating pay-as-you-go for taxes as well as spending because
it would force Congress to actually cut spending to accompany
the tax cuts instead of just promising to cut spending in the
future. That has been the weakness that we have gotten into.
One small step that would help restore a small measure of
fiscal discipline is enactment of expedited recision. Senator
Carper, you and I worked on that. Dr. Coburn, you have been the
champion lately of that same process. It makes good sense. We
went through this with line item veto and there were a lot of
folks that were saying we ought to give the President line item
veto. Some of us had a little problem with that because of the
Constitution, of granting an individual, in this case the
President, something that was not enumerated in the
Constitution. And sure enough, we found out it could not be
done. The Supreme Court ruled against it. But modified line
item veto makes good sense.
Dr. Coburn, last week when you attempted to extract some
spending from the budget, it would sure be nice if the
President of the United States could go in and either say,
those spending items that you were trying to extract should be
in the budget because they are necessary spending or they
should not, and as I have always said, you could take my pork,
that which I put into the budget, and President, you can veto
it. All I ask is a chance to have 50 percent plus one of my
colleagues to agree with me or with you.
Therefore, we get into the problem that Mr. Shadegg is
talking about, what is enumerated in the Constitution and what
is not. If my programs are not enumerated, i.e., by 50 percent
plus one--a little slightly different take than what Mr.
Shadegg is talking about--I am perfectly willing. I think it
makes good sense. Expedited recision would bring greater
accountability, all of those things up there, and I hope the
Senate, you in a bipartisan way, will look at implementing a
modified recision order.
Another tool that Congress should consider to eliminate
low-priority spending is sunset legislation to provide for
regular review of the efficacy of various programs. Here, if
our committees, and I will speak for the Agriculture Committee
in the House, we need to spend more time in oversight. One of
the few members on the House side that has done anything along
this line is Joe Barton of Texas in saying that many of the
programs in the energy and commerce and the health area, we
passed them and nothing ever happens because we don't look at
it. We ought to spend a little more time in that and
sunsetting, and one good way to do it is to have every program
stop every 10 years unless it is reauthorized. That is not a
bad idea.
Moving on real quickly, I think we ought to--or recommend
to you, I should say, to seriously look at changing the way the
CPI is calculated. Today, if we can debate, and we do debate
various credibility of any government program, but having an
automatic cost-of-living adjustment that is not accurate makes
limited amounts of sense, and there are several ideas out there
that can be extremely helpful in making sure that the CPI is
calculated, different views, different ideas, but I recommend
you take a look at it.
I would hope that this would be the year that Congress and
the President will take a look at, Mr. Chairman, what you
mentioned in your opening remarks, and that is the unfunded
liabilities of the many programs--Social Security, Medicare,
Medicaid. But it wasn't to be. We did not have the leadership
or the followership in a bipartisan way to deal with a program
that must be dealt with, no question about it.
When I first started being concerned about that, I didn't
have any grandchildren and 2011 was a long time away. That is
when the baby boomers are going to begin to reach age 65. Well,
2011 is not very long away and every day we wait to fix Social
Security, and then everybody will chuckle and say that was the
easy one. Medicare is going to be the tough one, Medicaid, in
this. But we postponed that for another year.
In conclusion, Mr. Chairman, I have attached an op-ed chart
published in the New York Times by Maya MacGuineas. I also have
the privilege of now serving on the Board of the Committee for
Responsible Budget. You mentioned Pete Peterson's book. I have
read it twice. I enjoy serving with him and many of the views
that we have, have come from him. I also serve on the Board of
the Concord Coalition, which is Pete Peterson--I got mixed up
there, but some good ideas. The Center for Budget and Policy
Priorities, a little more liberal group, but when you put all
three of those, and I recommend that you or your staffs take a
look at how much agreement we have on how you could truly do
something about the budget deficit.
Just today, and as I said, I am speaking for myself, but a
press release issued by the Committee for Responsible Budget
urges Congress to proceed with the spending cuts while holding
off on the tax cuts. I join in that recommendation. We only
disagree with some of the individual items suggested, but if we
are ever going to get a solution, we are going to have to find
a way to work together. You can have the greatest idea since
sliced bread, but as a member of the House, unless I could find
217 to agree with me and then 51 Senators, it was never going
to happen or you were never going to keep it from happening.
One of the happiest days of my life was seeing the balanced
budget constitutional amendment pass in the House of
Representatives. One of the saddest was watching it be defeated
in this body by one vote. If we had passed that constitutional
restraint, we would not have near the severe budget problems
that we have today. Thank you, Mr. Chairman.
Senator Coburn. Thank you, Congressman Stenholm. Dr. Pilon.
TESTIMONY OF ROGER PILON,\1\ VICE PRESIDENT FOR LEGAL AFFAIRS,
B. KENNETH SIMON CHAIR IN CONSTITUTIONAL STUDIES, AND DIRECTOR,
CENTER FOR CONSTITUTIONAL STUDIES, CATO INSTITUTE
Mr. Pilon. Thank you very much, Mr. Chairman. Thank you for
inviting me here to testify, and thank you especially for
calling these hearings on a subject that is too rarely
considered in this body as well as the body across the way,
namely, what is the constitutional authority for so much of
what Congress is doing. I am here to take a very serious
position, namely that most of what this Congress does is beyond
the authority of the Congress to do because it is done without
constitutional authority.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Pilon appears in the Appendix on
page 63.
---------------------------------------------------------------------------
A decade ago, I had the pleasure of working with
Congressman Shadegg over in the radical 104th Congress, his
first year in Congress, with the Constitutional Caucus that was
created at that time. It was a heady time when we thought we
might be able to do something about this. Unfortunately, it did
not come to pass, but I will say a little more about that in a
few minutes.
I appreciate the fact that you have lifted the normal time
restraint. However, I want to assure you I will not read the 17
pages of single-spaced testimony that I have prepared. I would
ask, however, that it be included in the record.
Senator Coburn. Thank you, and without objection, it will.
All testimony will be included in the record.
Mr. Pilon. All right. Good. Now, the main point that I drew
out of that testimony was the point about constitutional
legitimacy and that is what I want to focus upon primarily in
my remarks. Congressman Shadegg has covered a good deal of what
I included in my testimony. I will just fill in interstitially
some of the points surrounding that.
I wanted to focus on the Constitution's theory of
legitimacy and then raise three questions that arise from the
fact that so much of what Congress does today is done without
constitutional authority, namely how did we get to this state
of affairs; second, what are the implications of it; and third,
what is to be done about it?
This issue of legitimacy is, unfortunately, too little
understood not only in this body, but in the country at large,
although I think, Mr. Chairman, that you are absolutely right
that out there in the country, there are a lot of people who
have at least an intuitive understanding that Congress is
acting way beyond its constitutional authority.
After all, Madison said in Federalist 45, when he was
trying to assure a Nation that was concerned that the new
Constitution the Philadelphia Convention had drafted was giving
too much power to the National Government that the powers of
the Federal Government were to be few and defined. I don't
think anyone in this room thinks that the powers of the Federal
Government today are few and defined, and so the question is
how did we get from there to here?
The theory of legitimacy starts with the Preamble. We, the
people, for the purposes listed, do ordain and establish this
Constitution. Therefore, all power starts with the people. The
theory of the Constitution is really quite simple. They give
the government certain powers. They retain the rest themselves,
either giving them to the State or retaining them, never having
given them to either level of government.
The first sentence of Article I says, all legislative power
herein granted shall be vested in the Congress. By implication,
not all power was herein granted. Look at Article I, Section 8,
and you will find 18 powers that were granted to Congress: The
power to tax, the first power; the power to borrow, the second
power; the power to regulate international and interstate
commerce, the third power; and so on, culminating with the
necessary and proper clause which provides Congress with the
means to carry out those other powers.
Now, that theory of legitimacy, namely that the government
has only those powers we have given it, is one that we lived
under pretty much for 150 years, as Congressman Shadegg said,
and we see examples of it during that period. You drew upon the
little volume by Charles Warren, Congress as Santa Claus, a
title that captures volumes about what is going on today. And
in there, you find a storehouse of examples of Congress, the
executive, and the courts resisting the inevitable impulse
towards ever-larger government.
Remember, Jefferson said it is the tendency of government
to grow and liberty to yield, and we have seen that right from
the beginning. Hamilton's report on manufacturers in 1791 was a
national industrial policy that the Congress fortunately
shelved. In 1794, Madison was based with a bill for the
appropriation of $15,000 for French refugees who had fled from
an insurrection in San Domingo to Baltimore and Philadelphia.
He rose on the floor of the House to say, I cannot undertake to
lay my finger on that passage of the Constitution that
authorizes us to expend the money of the taxpayers on this
humanitarian activity. Two years later, his colleague, Giles
from Virginia, faced with a bill appropriating funds for people
suffering from a fire in Savannah said our duty is to uphold
the Constitution and our oath not to engage in these
eleemosynary activities.
And so it went largely through the 19th Century. Oh, there
were efforts, to be sure, but they were resisted. In fact, what
we see as late as 1887, 100 years after the Constitution was
written, was a bill appropriating for the relief of farmers in
Texas, excuse me, Congressman Stenholm, for the relief of
farmers there suffering from a drought, to buy them seeds. It
did make its way out of Congress but President Cleveland vetoed
it on the ground that I can find no authorization for this
expenditure in the Constitution.
And so what we have here is a pattern. They were rejecting
these programs and these proposals and these bills not on
budgetary grounds, but on constitutional grounds, on the ground
that we have no authority. And so the pattern we see during
these first years, largely for 100 or more years, was this:
Bills rarely got out of Congress, and when they did, Presidents
would veto them, and when they didn't, the court would stand to
thwart these efforts to expand government. And so the pattern
largely held, the system of checks and balances largely held
because Congress, the President, and the courts took the
Constitution seriously. They asked, do we have authority under
the Constitution to engage in this particular action?
Contrast that with the Gun-Free School Zones Act that
Congressman Shadegg raised a few minutes ago. That was passed
in 1990 by Congress without Congress so much as even citing its
authority under the Constitution for the Act. During oral
argument in the Supreme Court, the Solicitor General had to
bootstrap the authority into his argument by pointing to the
Commerce Clause. When that came up from the Fifth Circuit in
Texas, the Fifth Circuit had found it constitutional because
exceeding Congress' authority. For the first time in nearly 60
years, this had been said by a court, referencing the Commerce
Clause.
When it did, we at the Cato Institute commissioned a paper
by a professor at the University of Texas which we entitled,
``Kids, Guns, and the Commerce Clause: Is the Court Ready for
Constitutional Government?'' We thought that title might
attract their attention. Well, the official wisdom in
Washington said that would be reversed nine-to-nothing. The
conventional wisdom was set back on its heels when the Court,
five-to-four, upheld the Fifth Circuit and found the statute
unconstitutional.
And so what did Congress do? It repassed the statute,
citing the Commerce Clause this time and including a
jurisdictional element in the hope that it might be found
constitutional on the second go-around. So much for the respect
for the Constitution that the Congress is showing so often
today.
Now, when did all of this change? It changed, as
Congressman Shadegg said, during the New Deal. But the
precursor of the New Deal was the Progressive Era and it is
important to focus upon that because it is at that time that
the climate of ideas fundamentally changed. Whereas the
founding generation thought of government as a necessary evil,
the progressives thought of government as an engine of good, an
instrument through which to solve all manner of social and
economic problems. Borrowing from German schools of good
government, from British utilitarianism, which had replaced the
natural rights theory on which the Constitution rested, they
simply wanted to have program after program addressing the
problems of society. It was to be better living through bigger
government, if I may paraphrase the DuPont slogan from a few
years ago.
Well, of course, the pesky Constitutions to dethwart that
effort and the willingness of the courts to enforce it up until
the New Deal and the shift in focus by the progressives from
the State level to the Federal level, at which time one program
after another from Roosevelt was found to be unconstitutional.
After the landslide 1936 election, Roosevelt unveiled his
notorious Court-packing scheme, his threat to pack the Court
with six additional members. Not even Congress would go along
with that. Nevertheless, there was the famous switch in time
that saved nine. The Court got the message and it began
rewriting the Constitution without benefit of constitutional
amendment and it did it in two main steps.
In 1937, it eviscerated the Doctrine of Enumerated Powers,
the very centerpiece of the Constitution, the very foundation
of legitimacy. And in 1938, it bifurcated the Bill of Rights
and gave us a bifurcated theory of judicial review.
In the 1937 effort to eviscerate the Doctrine of Enumerated
Powers, it took two clauses, the General Welfare Clause, so-
called, and the Commerce Clause, turned them on their head,
turned them into instruments for expanding government power.
They effectively unleashed the modern redistributive and
regulatory State.
And in 1938, because the Bill of Rights was still standing,
you could invoke your rights against this overweening power,
they bifurcated the Bill of Rights to distinguish fundamental
from non-fundamental rights, developed two levels of judicial
review, gave us the incredibly convoluted constitutional
jurisprudence that we have today which makes the Constitution
all but inscrutable to the layman.
Now, in the 1937 evisceration of the Doctrine of Enumerated
Powers, I want to point to the General Welfare Clause, so-
called, because that is primarily at issue before these
hearings. The General Welfare Clause, there is no such clause
in the Constitution. It is, in fact, a phrase in the taxing
power. The Congress has, in the first of its enumerated powers,
the power to tax. The second, the power to borrow.
The idea that there is a General Welfare Clause comes from
the debate between Hamilton and Madison early on arising out of
the report on manufacturers that Hamilton gave to Congress in
1791. In 1936, in the Butler case, the Court entertained that
debate, came down on Hamilton's side in dicta. In 1937, in the
Social Security case, they elevated the dicta to the holding of
the case. And so that is where we have this so-called General
Welfare Clause to wrestle with today.
Well, what happened after that? Of course, the floodgates
were open and the modern welfare state poured through and----
Senator Coburn. Can I get you to go to what do we do about
it?
Mr. Pilon. Absolutely, and so what we have got today is
something like the Labor, HHS, and Education appropriations
bill, which I understand is before the Senate today, and again,
let me say there is not only no authority for this kind of
spending, but there is no authority for even these agencies
within the Constitution.
And so the implications of all of this are the loss of
legitimacy, legal chaos that flows from this, disrespect for
the law, the lack of discipline, and I mean discipline with
respect to the Congress itself and discipline with respect to
the people, because, of course, if Congress is going to bail
the people out every time they get in trouble, you are going to
get what you pay for. I give you the example of flood insurance
as a perfect example of that. And finally, the economic decline
that necessarily follows the expansion of government.
And so what is to be done about this? Well, this isn't
going to be changed overnight. We didn't get into this problem
overnight. We are not going to end it overnight. Moreover, too
many people have come to rely on all of these government
programs, so it has to be done slowly, but we have to begin,
and the place to begin is with a change in the climate of
ideas. Just as the progressives brought about this through a
mining of the world of ideas through the early part of the 20th
Century, so those of us who want to roll back modern leviathan
are going to have to work in the climate of ideas to change it,
and one of the best places to start is right here in Congress.
As I said, a decade ago, Congressman Shadegg, Congressman
Brownback when he was in the House, Bob Barr, Richard Pombo,
and others, there were 100 members altogether in the
Constitutional Caucus which sought to revive debate in the
House on the meaning and limits imposed by the Constitution.
And so this is the first step, to revive constitutional debate
by seizing every opportunity, when a bill is introduced, when
reauthorization is before the House, to ask, where is the
constitutional authority for this?
Second, enact nothing without citing the authority for it
in the Constitution and making a clear argument for that.
Third, move toward restoring power back to the States and
to the people.
And finally, don't confirm any nominee to the courts who
does not understand the Constitution creates a government of
delegated, enumerated, and thus limited powers. Thank you, Mr.
Chairman.
Senator Coburn. Thank you. Dr. Mitchell.
TESTIMONY OF DANIEL J. MITCHELL,\1\ McKENNA SENIOR FELLOW IN
POLITICAL ECONOMY, THE HERITAGE FOUNDATION
Mr. Mitchell. Thank you, Mr. Chairman. With my testimony
already in the record, why don't I just touch on some of the
highlights.
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\1\ The prepared statement of Mr. Mitchell appears in the Appendix
on page 80.
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Unlike Dr. Pilon, who has the background to discuss the
legal issues, I am an economist, so I want to focus more on
just the results, the consequences of government spending, and
first, let me give a caveat. There are many different policies
of government that affect economic performance--trade policy,
regulatory policy, monetary policy, and tax policy.
But if we try to isolate government spending and look at
the consequences of government spending, the No. 1 thing that
one would do is to compare costs and benefits, and the No. 1
thing to do when you are looking at costs is to recognize that
you can't spend the same dollar twice. Capital and labor can
only be used one time, for one purpose. And so any time
government does something, any time it is spending money, any
time that money is then being spent in a way that is utilizing
capital and labor in our economy, those resources, by
definition, are no longer available for other uses. And since
we assume that there is some productive capacity in the private
sector to utilize resources efficiently, the challenge for
policy makers when trying to estimate the overall economic
effect of government spending is to look at what benefits that
government spending will generate, or perhaps what costs that
government spending will impose.
Economists in the public finance literature talk about
public goods. In other words, these are certain goods that have
a positive net effect on the economy. We all would recognize or
at least appreciate the concept that if you had no government
at all and some sort of anarchial system, that you probably
wouldn't have very much economic performance. There would be no
court system, no rule of law, no police protection, no way for
a market economy to function very well in that kind of system.
So when you have the public good of police protection, rule of
law being put into place, you are actually facilitating private
sector economic activity.
It doesn't mean that financing those things is free. It has
a cost. But it means that the benefits exceed the cost, and if
you look at the back of my testimony, if you have it in front
of you, the first chart is something called the Rahn Curve and
this is named after a former chief economist for the U.S.
Chamber of Commerce who wrote about this back, I think, in the
1980s, he first started discussing this. He makes a point that
initial levels of government spending, assuming that they are
financing public goods, can have a very pro-growth effect on
the economy precisely because they are facilitating the
effective operations of a market economy.
But then at some level, when government is finished
financing public goods and it starts financing what we
traditionally would think of and what Roger described as the
modern redistributive welfare state, in that case, you have the
cost of raising the revenue, you are displacing private sector
economic activity by having government spending money, but you
are not getting a commensurate benefit. In other words, you are
not financing public goods, you are simply giving money to
people for satisfying a certain criteria.
Now, it may be, as has been touched on already, well
intentioned, but that doesn't change the fact that there is a
real economic consequence. I actually did a review of the
academic literature for a paper that was published by The
Heritage Foundation on the economic consequences of government
spending and it turns out there are several different
categories. I won't go through all them here, but suffice it to
say that you have two macro economic categories, the
displacement effect--government spends a dollar, it is no
longer available, and then the financing effect, and that
refers to whether you tax a dollar out of the productive sector
of the economy or whether you borrow it out of the productive
sector of the economy. Those will have specific sectoral
effects, the different financing mechanisms. You can even apply
that to, if we are a Banana Republic, printing money to finance
government spending. That would be a third way, but presumably,
we don't do that anymore.
All those different ways of financing government spending
impose different negative effects. And then you have the
various micro economic effects, and I walk through those in my
testimony. It is probably not terribly important to focus on
those here.
Instead, let me just take a minute to discuss the actual
real world economic effect of these things. I found your chart
up there very interesting, comparing the burden of government
in the United States compared to the original 15 nations of the
European Union. If you look at the actual data for economic
performance, and again, keep in mind the caveat there are
regulatory reasons, tax reasons, trade reasons that all
influence economic performance, and so comparisons between
countries are always a little bit tricky. But when you have
dramatic numbers, such as the fact that per capita economic
output in the United States is 40 percent higher than the
average of the European Union 15 nations, that should make us
pause and consider, what does that mean?
When you consider that traditional economic theory suggests
that if one Nation is poor and another nation is rich, they
should begin to converge over time as competitive forces bid
away the cost advantages of the lower-income country and raises
that country's income. But what has happened is the United
States started out richer than Europe and our gap, our lead
over Europe has increased in the last 20 years completely
contrary to the theory. Why is it that when we are starting out
richer than Europe, we are still growing faster than them?
Presumably, economic policy plays some role, and presumably,
the size of government is one of those economic policies.
If you look at more specific government data, such as
unemployment rates, the unemployment rate in the United States
is barely half of that of the average in E.U. countries, and
some of the most notable welfare States in Europe, like Germany
and France, have unemployment rates more than twice the U.S.
level.
And perhaps even more shocking is if you look at the
duration of unemployment, 48 percent of the unemployed in
Europe have been unemployed for more than a year. In the United
States, that number is less than 10 percent. Now again, labor
law restrictions and rigidities in that market, tax policies,
including extraordinarily high payroll tax rates, other factors
are involved. We don't want to just focus on government
spending.
But in my testimony, from the survey of the academy
literature, I walked through some of the key findings, findings
not only from academic journals, but findings even from some of
the multilateral institutions that we don't normally think of
as pro-market--the World Bank, the IMF, the OECD, the European
Central Bank--in addition to various academic journals out
there, there has been a very clear trend in the academic
literature in the last 20 years showing that as government gets
bigger, you wind up having a weaker economic performance.
In other words, going back to the theoretical
considerations I outlined in the beginning, every time you make
government bigger, you not only have those displacement costs,
you not only have those financing costs, but then you also have
the various and sundry other costs that are outlined in my
testimony.
Let me just touch on a few examples of countries that have
turned their policies around to conclude my testimony.
Oftentimes, when talking about these issues, policy makers will
say, but if we dramatically reduce government spending, isn't
that going to cause an economic slowdown? Isn't that going to
be somehow withdrawing money from the economy? And you walk
through, of course, the theory about, no, you are actually
freeing up resources for more productive use, but I find it is
actually even more effective to talk about real world examples.
New Zealand, many years ago, had government spending at
almost 50 percent of GDP. In other words, they were at the
level that many European countries are at right now. New
Zealand's economy was suffering considerably. Under, actually
originally beginning under a Labor Party government, New
Zealand dramatically turned around its economic policy,
including very significant reductions in government spending.
Government spending has now fallen to about 35 percent of GDP,
which is pretty close to the U.S. level when you include State
and local government in the United States, and what has
happened is New Zealand has prospered ever since then. They are
now among the top ten competitive economies in the world,
according to a whole series of different rankings. Their GDP
has increased dramatically and they have clearly turned their
economy around.
Ireland is another example. Ireland had government spending
of 52 percent of GDP at the peak. Their economy was in the
doldrums. Their biggest export was their people. Their
unemployment rate peaked at 17 percent. Well, in addition to
other policies--again, there are many factors that go into
economic performance, but one of the things that Ireland did
was dramatically reduce government spending. Indeed, over a
period of 1986 to 1988, government spending was reduced by 20
percent. And all told, over the period from the mid-1980s until
today, government spending has gone from 52 percent of GDP down
to about 33 percent of GDP.
So, in other words, they are one of the European countries
that has actually moved much more in our direction, and as a
result, the economic consequences for Ireland have been
stupendous. Their unemployment rate has fallen from 17 percent
to 5 percent and the per capita GDP has expanded so much so
that they have gone from being one of the poorest countries in
Europe to now being the second richest Nation in the European
Union, behind only Luxembourg, which is a special case because
it is such a good tax haven for all the other over-taxed people
of Europe.
And then, finally, an example from the Eastern Bloc. The
former Soviet empire broke up and we now have various nations
that are doing a lot of really good things with economic
reform. Slovakia is a great example. According to OECD data, in
just a period of 7 years, they have brought government spending
as a share of GDP down from more than 60 percent of GDP to only
about 43 percent of GDP, still very high, but a dramatic
reduction in an extraordinarily short period of time.
Now, the old Keynesian theory of government spending being
good for the economy would have suggested that would have led
to economic turmoil. Instead, Slovakia is one of the new tigers
of Eastern Europe and they have more foreign direct investment
per capita than any other Nation on earth.
And so again, the actual empirical evidence, the academic
evidence, the theoretical evidence all suggests that when
government expands beyond the basic financing of public goods--
and by the way, it is the public goods that, by and large, are
in the enumerated powers section of the Constitution--when
government expands beyond that level, there are real economic
costs.
Frederick Bastiat, the great French economist, used to talk
about or right about the seen versus the unseen, and he was
usually talking about why protectionism is bad. We all see the
beneficiary of protectionism, but we don't realize, we don't
see quite as easily all the people who are losing jobs and
losing income because of barriers to trade.
The same analysis applies to government spending. Many
people think government spending is good because we see the
person getting the check from the government and we think, ahh,
that person is going to go out and spend the money in the
community and that is going to somehow create jobs. What we
don't see is as those resources are displaced from the
productive sector of the economy and they are used less
efficiently through the political process, there are very real
costs, just like there are very real costs to protectionist
policies.
Economic growth is all about using resources in the most
efficient manner. Having government take those resources,
control those resources, and allocate those resources, in most
cases, is going to impose more costs than benefits. Thank you
very much.
Senator Coburn. Thank you. Let me just ask a question. Did
any of these countries--New Zealand, Ireland, or Slovakia--did
they develop the political will within, or were they faced with
an economic crisis that forced that change?
Mr. Mitchell. In the case of New Zealand, I think it was an
economic crisis from without more than anything else. As a
geographically isolated country that obviously had to rely a
lot on trade, they were losing foreign investment. They were
losing--their own domestic savings was going abroad. And this
was actually under the so-called right-wing National Government
that these policies really came to a head. That party got voted
out of office. The new Labor Party that came in decided that
they had no choice but to try to engage in these reforms and
they liberalized their economy across the board, not only in
terms of spending, but again, I don't want to pretend that
spending is the only lever.
In the case of Slovakia, and we have seen this with many
other countries to come out of the former Soviet empire, having
had their economies decimated by decades of communist rule,
they obviously were very ripe for dramatic and sweeping
economic reform.
Ireland is a case where, ironically, it seems to have been
domestic home grown, where the various parties just came
together, and actually, working with business and labor unions,
decided if we want to grow and prosper, we better figure out a
competitive strategy. As part of being in the European Union,
there was a lot of discussion, well, if we can make ourselves
the base for multinationals to build their factories to serve
the European Union market, that is going to be very successful,
and they decided that if they wanted to afford the dramatic tax
reductions that they engaged in, they had better also get
control of the public spending side of the equation, and so
they did the two things in conjunction.
But again, that wasn't really because outside forces were
compelling them. There was no IMF or World Bank, like you find
with less developed countries, ordering them to make the
changes. It was more just that the domestic political forces
thought that if we don't make the changes, we are going to
continue to suffer migration of our best and brightest young
people out of the country. We are going to continue to be the
sick man of Europe. We are going to continue to have very low
living standards.
Senator Coburn. Do you foresee a potential crisis for this
country in terms of the deficit spending, one; international
debt, two; and three, international trade deficit, that you
could foresee a period of time where there would be economic
situations where the international financial community would
force those type of changes on this country?
Mr. Mitchell. Well, I am not one who goes to sleep or wakes
up worrying about the deficit. I tend to worry more about just
the size of government and how it is financed tends to be a
secondary concern. As I mentioned in my testimony, both methods
of financing government have their own specific negative
sectoral effects on the economy, but having said that, we have
a very bleak future in terms of the unfunded liabilities of not
only our Social Security system, but Medicare, the new
prescription drug entitlement, the combination of all these
things. You are looking at unfunded liabilities that are
several times the size of the national debt.
Now, again, I am not one that spends a lot of time worrying
about the national debt. In present value terms, paying it off
today is the same as just rolling it over. That is what
interest rates do. They make everything a wash in terms of
present value. But when we are looking at projected unfunded
liabilities of tens of trillions of dollars, and what that
really translates into is the fact that our government spending
is going to go up to the level that you find in France and
Germany, and whether we decide we are going to finance that
government spending by raising taxes or whether we just finance
that government spending by issuing debt, assuming people will
continue to purchase our debt, the real economic damage is the
fact that we are going to have half of our resources in our
economy being allocated according to political considerations,
and I suspect that is where we are going to do the most damage.
Regarding whether international investors are going to
finance our debt, that is a little bit of a tricky question
because if you are an international investor purchasing U.S.
Government debt--whether you are a foreign life insurance
company, a foreign mutual fund, a foreign central bank--we have
various sources that are purchasing our government debt, it is
obviously not in your interest as a holder of U.S. Government
debt to see the value of that debt go down. So I don't think
that a foreign central bank or a foreign mutual fund would ever
decide that they are going to cause a run on U.S. securities
because that would be very much against their interest. They
want their investment to grow, to increase, to remain at a high
value.
But nonetheless, if we do allow our national debt to grow
from, what, around 35 percent of GDP today, if we allow it to
go to 50 percent of GDP, 70 percent of GDP, at some point,
investors are going to get a little queasy about that. Now,
where that point is is hard to say. In a remarkably short
period of time, Japan in just the last 15 years has gone from
government debt of about 50 percent of GDP to government debt
of 120 percent of GDP, but investors are still buying Japanese
bonds. The same thing with Italy. Their government debt is well
over 100 percent of GDP. It makes ours look like just pennies,
and yet people are still buying Italian government debt.
So where that point of crisis occurs, it is hard to say.
Where we have seen crises occur in governments tends to be in
less developed countries where there is monetization of the
debt. That, overnight, will cause the confidence in a country
to collapse.
Senator Coburn. Congressman Shadegg, the Enumerated Powers
Act is now part of the process, is it not, of the House? How
does that work? How did that come about? And do you have any
recommendations for us in the Senate?
Mr. Shadegg. It came about as a result of, I think, the
House's decision back even in the heady days of the 104th
Congress not to pass a statutory requirement. So instead, it
embodied the concept of the Enumerated Powers Act into a House
rule. Quite frankly, in my printed testimony, there is a list
of bills that were introduced last year where the rule would
require citation of the constitutional authority and yet no
citation was ever made. I think it is, quite frankly, a feeble
attempt to deal with the issue because the rules are known and
paid attention to by very few Members of Congress and they are
waived routinely by the Rules Committee and tend not to have a
very binding or substantial effect on the debate or what goes
on.
Quite frankly, I think it is very important in this
discussion to recognize that this isn't all green eye shade
stuff. My colleague, Mr. Stenholm, talked a lot about the green
eye shade consequences and the debate of, well, are tax cuts a
bad idea, but spending, we have to hold in control. If we raise
taxes and check spending, are we getting somewhere?
I am very pleased to note, as Dan Mitchell points out, that
there are economic consequences of an unrestrained government,
but there is a more fundamental issue at play here.
It is interesting--again, I point to my colleague, Mr.
Stenholm. I, like he, was very pleased the day the House passed
the Balanced Budget Amendment saying we should require a
balanced budget in this Congress, in this country, and also,
like he, was very disappointed when the Senate defeated it. But
the reality is, we don't need--we would not need that
constitutional amendment if we were simply living up to the
Tenth Amendment and the Enumerated Powers Clause and to the
restrictions on the powers of Congress.
I think when you begin to see things as radical, for
example, as the Nation demanding that the Federal Government
take over all disaster response and the President saying, well,
maybe we should just cut the locals totally out of that process
and maybe what we should do is have a FEMA that simply
nationalizes every disaster, I think you begin to see that we
have lost all connection, I think, with what the Founding
Fathers did.
And I would argue that in so many other places, and I
thought Dr. Pilon's comments about how the Supreme Court has
created this two-tier interpretation of the Bill of Rights,
saying, well, some rights are really important and they point
to liberty rights or they point to criminal rights and they
say, these just demand or require strict scrutiny, but these
other protections in the Constitution, well, they are not so
big a deal. We don't have to analyze them so closely.
I think that has gotten us in great trouble because it
abandons these fundamental principles. It says, look, sure, we
had enumerated powers and they dealt with the growth and size
of the government, but that is really not as big a deal as an
unlawful search or an unlawful seizure by the police, and so we
are going to give closer scrutiny to these. I don't think the
Founding Fathers intended that and I don't think they spent
their time debating these principles.
Remember, we had previously had an attempt at a National
Government. It had failed and we were seeking desperately to
strike a balance between the power of the States and the power
of the Federal Government. I think a lot of time and energy
went into that. I think there are many scholars who say that
the authors were inspired, and it is sad to me that we have
decided, well, some of the things they were inspired about were
important and we will abide by those, but others, such as the
Tenth Amendment and Article I, Section 8, well, those aren't so
important.
And I think Dan makes the point that once you start to
skip--kind of drift a little bit away from those requirements
in the Constitution, you can build this massive government and
the economic consequences are dramatic.
Senator Coburn. Thank you. Senator Carper.
Senator Carper. Thanks, Mr. Chairman, and again to our
witnesses, thanks for your testimony and for responding to our
questions.
I think our Chairman alluded to Davy Crockett. What State
was he from, Tennessee?
Senator Coburn. Tennessee.
Senator Carper. And grew up in Delaware, though, did you
know that?
Senator Coburn. He moved West and South. [Laughter.]
Senator Carper. No, he didn't. Davy Crockett, and
Congressman Shadegg referred to him, as well--when I listened
to that story, and I have heard it before, what I was struck by
was leadership, leadership by example, and what I was struck by
was a call for a sharing of sacrifice from across the board
from all the members with whom he served, different parties,
different parts of the country.
When I look at the situation we find ourselves in today,
frankly, I don't see the kind of leadership that I think he
epitomized when he stood up and called for what I believe is a
sharing of the sacrifice. I think just as his call was answered
by his colleagues all those years ago, I believe that a leader
today, it is harder for a member of the Legislative Branch to
provide that leadership.
Speaking as an old governor, in my State, if governors
didn't provide or offer budgets that were balanced, if
governors didn't espouse responsible spending programs, if we
didn't call for, in my State, rainy day funds, if we didn't
call for being conservative on revenue estimates, if we didn't
call for those kinds of things, it is not in the nature of a
legislative body to step in and fill that legislative vacuum.
That is not to take anything away from those of us who have
been privileged to serve here, but I would just acknowledge
that.
I want to come, first of all, if I could, to Congressman
Stenholm. Two of the issues or two of the initiatives that you
and I worked on were the Balanced Budget Amendment to the
Constitution and what I call a statutory line item veto. And
one that you and I worked on in line item veto, I call it a 2-
year test drive for line item veto powers, where we give the
President enhanced recision powers. Basically, we provided in
the first bill that passed when I was in the House with you,
provided for a 2-year test drive with the ability for the
Congress to override the President's veto or recision with a
simple majority, 50 plus one, 50 percent plus one.
The other thing I would note, in our Balanced Budget
Amendment, we required--and at the time when we were doing it,
I thought all the elements of it were important. I thought it
was important for the Congress to be able to override--to
unbalance the budget with a three-fifths vote. I thought it was
appropriate for us to be able to raise the debt ceiling with a
three-fifths vote. But when I look back on our efforts all
those years ago, I think maybe the most important provision in
our proposal was one whereby the President had to propose a
balanced budget.
And I will go back to the idea of executive leadership. My
experience in government in my State, and frankly, here and
watching State and local governments work, cities and counties
work, if you don't have a mayor, if you don't have a county
executive, if you don't have a governor, if you don't have a
President who is providing leadership by example, it is darn
hard to get the legislature or the county council or the city
council or the Congress to step up and provide that.
Let me just yield to you, Congressman Stenholm, if I can,
and ask you to go back and talk a little bit more about
enhanced recision powers, the role of the Executive Branch. How
do we make sure that the Executive Branch doesn't misuse those
powers in an effort to, as some with whom I serve--Dr. Coburn
and I serve with today who are fearful of Congress ceding its
powers over appropriations to the President. The fear is that
if we give him enhanced recision powers, the President will use
those enhanced recision powers to extract from different
States, to use those almost to blackmail Senators and
Representatives to support positions that we otherwise would
not. Would you just comment on those, please?
Mr. Stenholm. Yes. One of the thought processes and
legislative processes that I went through over the years
leading up to that, first off, there was tremendous support for
the line item veto in certain groups, the more conservative
groups saying, we ought to give the President line item veto.
I opposed that and I always asked anyone this simple
question. Does it matter to you, and I usually used the word
``President Kennedy'' or ``President Reagan,'' does it matter
who it is you are going to give the line item veto? If they
said, no, it doesn't matter, fine, that is an honest position.
But if you hesitate for just a moment, depending on whether you
are looking at a liberal President or a conservative
President--the eye is in the beholder--then I have got concern
with that.
Therefore, we came then ultimately to saying that it
doesn't matter to me--it matters to me a whole lot. I don't
want to give any President one-third plus one minority override
of the Congress of the United States. I did not want to do
that. It didn't matter who the President was. But since we get
into this debate about spending, and we are into it again, and
I think it is fascinating that at no time in the last 5 years
has there been any recision of any spending. We are talking
about leadership and accountability. Say that respectfully,
now.
I am a great respecter of the office of the President of
the United States, but if we were having this discussion today
and we Democrats were in the majority, I suspect there would be
a different tone of the concern of the deficits today, with all
due respect to Heritage and Cato, who I have found to be
tremendously credible. I will say over the years, my 26 years,
both of these organizations have performed a tremendous service
for those of us privileged to serve in the Congress with the
battle of ideas. I don't agree with them 100 percent of the
time, but I think I can say that I have agreed a majority of
the time, 50 percent plus one.
But having said that, I came down to basically this. I
don't mind giving any President line item veto modified, by
that saying that if he picks out something that Charlie
Stenholm put into the budget, into the appropriations,
somewhere there, and the President says, no, it should not be
there, all I want is a chance to have 50 percent of my
colleagues to agree with me. If they agree with the President,
it ought to go.
I think that is something that gives transparency to
accountability. That was the process we went through, and I
think it is still a very good process because it does bring
accountability and transparency to many of these issues and it
also would cause those, if you are going to ask for something
to be in the budget, you have to be prepared to defend it in
the context of your colleagues, 50 percent plus one.
Senator Carper. Thanks very much.
If I could, Dr. Mitchell, I just may direct a question to
you. I probably should know these numbers better than I do, but
my understanding is that revenues to the Federal Government as
a percentage of GDP go up and down, sometimes as high as maybe
the low 20 percent, sometimes as low as 17 percent, at least in
my lifetime. I am 58 years old. And probably during World War
II, that percentage was well above 20, 22, 25 percent during
that period of time.
Today, we are spending, I am told, about 17.5 percent--
revenues constitute, rather, about 17.5 percent of our GDP. I
think compared to the last 10, 20, maybe 30 years, that is
fairly low. If you look at the difference between revenue as a
percentage of GDP at 17.5 percent, spending as a percentage of
GDP is about 20.5 percent. Those 3 percent, I think, pretty
much account for a $315, $320 billion deficit. Some would argue
that if we just raised revenues by those 3 percent, we would be
able to balance the budget.
I don't buy any of that argument. I think there is plenty
that we can do. Dr. Coburn and I are interested in--not just
interested, but we are working hard to clamp down on improper
payments. Those are probably worth about $50 billion a year. We
are about to go to work on making sure that the revenues that
are owed, that we know who owes the revenues that are not being
collected and that is at least $100 billion a year, maybe twice
that, that we go after that. Congressman Stenholm has talked
about trying to make sure that we are using the right COLA that
we use to adjust payments. I know I suspect all of us are
supporters of BRAC as an effort to try to cut some spending out
there. I have been working on flood insurance for 15 years,
trying to make sure we don't reward people for building in
harm's way. There is a whole lot of stuff we can do, means
testing both parts of Medicare and maybe Medicaid, trying to
make sure that folks don't dump their assets in order to be
eligible for Medicaid. There is a whole lot that we can do
other than just raising revenues to close that deficit. So I
wouldn't suggest that we reduce the entire deficit, but if we
could think about it, if we could actually make sure that $50
billion worth of improper payments didn't get paid every year,
if we could even collect half of the $200 billion that we think
is out there to be collected but not being collected, and if we
could do some of these other things that I mentioned, the
difference between revenue as a percentage of GDP and spending
as a percentage of GDP wouldn't be 3 percent. It would be a
whole lot less than that.
So that is a long way of asking this question. Do you see
any rationale for raising revenue as a percentage of GDP, or
how would you practically go about reducing that difference,
that 3 percentage points? How would you propose that we do it
other than some of the things that I have mentioned?
Mr. Mitchell. If you look at the last 50 years, basically
from the end of World War II until today, Federal tax revenues
have averaged 18.1 percent of GDP. We are a little bit below
that now, so if you look at the CBO long-range forecast, even
with the President Bush tax cuts being made permanent, we are
supposed to sort of slowly creep up to about that level. Now,
that still begs the issue of, OK, well, spending is at 20.5
percent of GDP and even if we are at our long-term average of
revenues, what needs to be done?
I, of course, would prefer, looking at the economic data,
the economic literature, that we reduce the size of government.
Now, that doesn't take, I think, too much heavy lifting. If
revenues are going to grow just normally, 7 percent a year in
nominal terms, which means about 4 percent, say, in real terms,
if we can somehow just limit government growth to twice the
rate of inflation, we would pretty quickly get to a balanced
budget for those that think a balanced budget is nirvana.
Again, as I stated before, I am not sure it is nirvana.
Norway, in large part thanks to oil revenues, has a budget
surplus, but government spending is at 50 percent of GDP and
they are suffering a lot of economic problems. They just happen
to have the revenue to finance that government, but I don't
think that is--we wouldn't want to trade places with Norway.
Maybe we would like their oil, but we certainly wouldn't want
to trade places with their fiscal policy.
In terms of whether revenue should be higher than 18
percent of GDP, I am tempted to say no, but let me cite an
example of how I would say yes. Hong Kong has a 16.5 percent
flat tax. The tax revenues in Hong Kong are a little bit more
than 20 percent of GDP.
I would be perfectly happy to trade tax systems with Hong
Kong. I suspect the lower incentives to evade and avoid the tax
system, the faster economic growth--Hong Kong has been the
fastest-growing economy in the world ever since the end of
World War II--for a whole host of reasons, we could wind up
collecting more revenue, but it wouldn't be as a result of
imposing additional burdens on the American people. It would be
the result of having a tax system that just facilitates and
makes it easier for an economy to grow and for people to pay
their taxes without having nearly the incentive to utilize
lawyers, lobbyists, accountants, financial planners, and people
like that to minimize their tax bills, either legally or
illegally.
So in that special circumstance of utilizing better tax
policy to get additional revenue, you could get a ``yes'' out
of me, but as a general rule, no, I don't think the problem we
have is a problem of too little revenue coming from the
American people.
Senator Carper. Thank you very much.
Senator Coburn. Thank you.
I tend to recall a graph I saw on economic growth in the
United States, and every time that tax revenue got above 19
percent of GDP, economic growth declined. Every time it was
below 19 percent, economic growth grew, and that is on a trend
line from, I believe, 1951 forward. So 19 percent somehow in
our economy seems to be the cutoff at which, when tax revenues
rise to that level, we see an impediment to economic growth.
I wanted to clear up some things, because I think one of
the problems in Washington that has caused some of our problems
is we don't talk real numbers. We have had people talk today
about the deficit. You all have mentioned the deficit. But, you
know, the real number that impacts our economy is not the
deficit. The real number that impacts our economy is how much
do we add to the debt every year, and what we publish as the
deficit versus what we add to the debt are two totally
different numbers.
One of the things that I would just like to add, we really
ought to be talking about the real numbers because the deficit
doesn't include any off-line emergency spending, which goes
straight to debt. We never put that in the number. So when we
are comparing--for example, this year already, we have passed
almost $200 billion of emergency spending, of which a large
portion of that, or $100 billion, if you look at that into the
real deficit this year, that is close to $500 billion in terms
of increased debt that our kids pay. So I think part of our
problem is the numbers we use.
An interesting thing that we have found also is our budget
scoring rules cause us to do the wrong thing economically. For
example, we no longer lease-purchase any buildings in the
Federal Government. The reason we don't lease-purchase any
buildings in the Federal Government is because if you lease-
purchase it, it is scored as a cost to the year that you signed
the lease-purchase rather than amortized over the lease-
purchase. So we lose two ways. One is, first of all, we don't
have any ownership. Two, we lose in the appreciation of the
asset. That is about $3 billion a year we are losing right now
because we lease rather than lease-purchase, and it is sort of
our oversight.
The other thing that I wanted to bring out is there is a
real difference, and a philosophical difference, as Crockett
called for shared sacrifice. He didn't call for the government
to do it through forced sacrifice of other people. He called
for shared sacrifice of individuals. There is somewhat of a
philosophical difference between the two sides of the aisle on
where that sacrifice should come, and the thing that I have
talked about with Katrina is that charity cannot be made
without real sacrifice.
So I am tremendously thrilled with the testimony we have
had today and I want to thank each of you for being here, and
especially Congressman Shadegg. This was a real sacrifice on
his part on things he needed to do in Arizona and he gave those
up to come and testify and I want to tell you, John, I
appreciate it.
Congressman Stenholm, I want to offer a formal request that
you come and visit with me. I believe in pay-as-you-go. I
believe in doing the right things and I believe we ought to
institute everything we can to put fiscal discipline back
within us.
But I would also say, we don't need any of that if we will
just follow the Constitution, because if we follow the
Constitution, we won't have to have an expedited recision.
There won't need to be one because we won't be putting it up
there if it is not a constitutionally valid piece of
legislation in the first place. We saw what happened in the
Senate this last week is that when you--this whole theory of
earmarks. Earmarks in the long run hurt us all. They don't help
us. They hurt us all, because the sum of the whole is much less
of what the States get versus the damage that is caused by
earmarks.
So we have a lot of work to do before us. I thank you for
your testimony. I look forward to hearing and working with each
of you in the future, and the hearing is adjourned.
[Whereupon, at 4:16 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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