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The author has chosen to use a question-answer format in order to make the often complex subject matter, easier and more enjoyable to read. Q and A is not a dialogue between real people. The author has provided the dialogue for both Q, standing for Quaero, which in Latin means “I search for” and A, Auctor; which in Latin means “person responsible.” Q- I understand you have been following the federal budget process closely for the past ten years. How did you get interested in a subject that most people find extremely boring as well as complicated? A- My interest can be traced to 1982 and the formation of the Grace Commission. Q- What is the Grace Commission? A- The Grace Commission, originally known as the President's Private Sector Survey on Cost Control was established in February 1982 when President Reagan asked prominent businessman, J. Peter Grace to head a commission for the purpose of conducting a comprehensive study of government spending. The Commission was privately funded and consisted of one hundred sixty-one high-level private business executives familiar with cost control and efficiency. When the Commission began its work I eagerly anticipated the results, naively thinking they would come up with a relatively quick and easy way out of our national debt problems. Q- It sure looks like they didn't do their job. A- Oh but they did. The Commission originally came up with 2,478 recommendations, which if implemented, would have saved $424.2 billion over three years. Q- Then they didn't follow through? A- More than half, 1,426 proposals had been implemented by the end of fiscal year 1987. Q- Then why does our debt keep growing? A- Eliminating waste is only one part of the problem. Our elected officials have continued on an unprecedented spending spree. You've no doubt heard that it took two hundred and four years to accumulate the nation's first one trillion of debt but only four years to accumulate the second trillion. Q- Which four years? A-1981-1985. The debt ceiling was raised in 1985 to $1.823 trillion and then again in 1986 to $2.3 trillion. But, as was so often said during the eighties, “You, ain't seen nothing yet!” With
nobody seeming to care, our elected officials kept spending. In 1990 the ceiling had to be raised to three and a half trillion. The spending continued so that in 1991 the debt ceiling quietly passed the four trillion mark. Q-You're right. I didn't hear anything about it, and if I had I wouldn't know what to make of it. This may sound stupid, but I doubt that I'm the only one confused about how the deficit is measured. It seems there are a lot of very different numbers out there all claiming to be the deficit. A- You're absolutely right to be confused and your confusion is the result of intentional obfuscation. There are baseline deficits, policy deficits, on-budget deficits, off-budget deficits, deficits which compare last year's spending with this years, deficits that count any increase less than the rate of inflation as a cut, deficits that count any spending less than last years as a cut, deficits that count the Social Security trust fund surplus and deficits that do not, deficits that include the cost of the war in the Gulf and the savings and loan bail out and deficits that don't, deficits that include government liabilities in the form of guaranties, loans, deposits, mortgages and promises which must be kept to pay health and retirement benefits to federal employees or veterans or other entitled beneficiaries and deficits that don't. And then there is the debt; the accumulation of annual deficits. If you were to count future liabilities of the federal government as debt, you'd get another and even more astronomical figure. Q- Unbelievable! We’re not getting true figures any year and certainly not about the accumulated debt. Economists and politicians don’t seem to care that much so I wonder—do deficits really matter? A- There are as many opinions as there are economists. And I'm convinced that's all they are, opinions, no matter how many charts and figures they come up with. Some economists insist that excessive government spending encourages demand which reduces savings, drives up interest rates and inhibits investment and economic growth. Q- I've heard that it makes no difference, as long as government is going to spend anyway, whether the spending is financed via borrowing or taxes. A- That’s because it ends up in the taxpayers’ lap either way. Someone’s got to pay interest on the borrowing. The only answer is cutting the outgo to match the income. Q- It really is a dilemma. Cutting back could hurt a lot of people who depend on government programs. A- Always ask what Americans did before all the government programs and you’ll find families had a much larger role to play. The government is taking over the role that used to belong to families and neighbors.
Q- But what about those who have no family and friends? A- Everyone’s got someone but they’d rather not be a burden on their families and friends as long as three hundred million strangers will support them, willingly or unwillingly. And for those who made poor choices and find themselves estranged and friendless the private sector already offers voluntary help via countless organizations; the Salvation Army and Goodwill Industries being a couple of the oldest and most well known. Q- Come to think of it, a group was working on cleaning up walkways and doing handy man type chores at our place and I found out later it was started by one of them who had been lost to drugs. Once clean, he and his wife had opened their home and rescued others. They were all supporting one another emotionally through tough love as well as economically pooling their funds. I had no idea until I read about an auction they were holding to raise money for their cause and donated some furniture. They were full of gratitude—I don’t know how else to explain it. They made a point of traveling to areas in the country hit with disaster and pitched right in with folks they didn’t even know and helped clean up the messes left by floods, tornados, hurricanes fires and other catastrophes. A- It probably gave them a way to make up for their past behavior and regain their pride. Q- Maybe so. But getting back to the deficit problem; I think as a nation our choice is either bite the bullet now or have future generations shoulder the burden later. If you have a preference between taxing or cutting, it is probably dependent on whether or not you have children. A- It’s even more than that. As far as I'm concerned the economists can argue among themselves and try to determine through economic models the effect of deficit spending as long as they like, but I have my own reasons to fear deficits. My objection is philosophical—I don't want to see an expanding role for government and the accompanying expansion of power over the lives of individual citizens. Deficit spending by the government means an expansion of government's role in society which means a crowding out of the more productive and efficient private sector. Q- I think a lot of us out here just don't understand the squabbling that goes on with the budget every year. A- Maybe it doesn't seem important because so many ordinary citizens don't have their own budgets under control; they are in debt because they fail to match their personal income and outgo. That's what it's all about—making spending and revenue come out even. The federal budget entails balancing defense and non-defense, protecting low-income programs and putting tax dollars into programs members of Congress think are worthwhile. Q- The problem is all proposed and ongoing programs are considered to be worthwhile. A- But members of Congress are so far unwilling to collect enough to pay for them all. Thank goodness! Q-Who decides how much revenue to collect?
A- Congress makes that decision. Our forefathers realized every government is tempted to spend money, but thought the Congress would be more likely than the executive branch to keep taxes low. Congress was to give the executive a specific amount of money and the executive was to decide how to allocate those funds. That’s simplistic, but the campaign platform gave the people a good clue as to what the president wanted to do. Q-How does Congress reach a decision as to the proper amount to collect? A- In recent years the determining factor has been need. However the definition of need is dependent on the legitimate function of government which has been debated for over two hundred years. Q-Why can't Congress simply collect a set amount of the national income each year? Say ten percent. Several churches tithe. A- Many people actually believe that giving the government a set sum and making our elected representatives tailor needs to that sum, as private citizens must do with personal budgets, is the correct way to proceed. Q-I'd buy that idea. Communism failed when it attempted to fill everyone's needs. A- You're absolutely right: We're bound to run into problems if we allow taxes to be based on infinite needs instead of on finite revenue. Even if we could limit and define needs, the revenue could not be accurately determined in advance because so much depends on guesstimates of future unemployment, economic growth, interest rates, inflation and so forth. In a collectivist economy, public needs enjoy the same sort of built-in priority that private consumption enjoys in a capitalist economy. In the collectivist economy all resources are available to the public sector and private consumption is restricted. Witness the empty shelves and long lines in many collectivists’ countries. The old Soviet Union is a perfect example. In a capitalist economy public services are restricted to claims against the private sector. Q- It seems like there is a lot of guess work in the budget process. Needs may be largely dependent on which groups have the most effective lobbyists. A- It is scary isn't it? Q- More like stupid! A- Every year one side claims the other side's economic assumptions are not realistic. I remember at the beginning of 1989 interest rates were over eight percent and rising and the administration came up with a 5.4 percent interest rate for its projections for FY1990. It's extremely important to predict rates accurately because our interest expense is so large. For FY1990 for every percentage point that interest rose, between ten and eleven billion was added to the deficit.
Q- You mean if interest rose from seven percent to eight percent the government would have to pay an extra ten billion in interest cost to carry our debt? A- You got it! Under Bush's first budget proposal, defense grew at the same rate as inflation but other programs didn't. Of the $14.2 billion in new revenue, four billion was slated to come from the sale of government assets, two billion was to come from user fees and the rest from tax increases. Q- Tax increases in George Bush's first budget? No way! He was still the read my lips president at that time—no new taxes—remember? A- But he had Richard Darman, the stealth director at the Office of Management and Budget working for him. I'm talking about new revenue from the collection of Medicare contributions forced on unwilling state and local employees who had up until then managed to stay out of that once voluntary system! Q-You're talking about the budget for FY1990 which had to be determined in October, 1989. George Bush hadn't even been president for a full year. Laying out that first budget must have been interesting. A- There was the usual grandstanding. The Democrat's 1988 nominee for Vice President, Lloyd Bentsen, still had high visibility. I remember him talking about the need to raise revenues. Q- Why not? The election was over. No one dared suggest raising taxes just before an election after the Democrat's 1984 nominee, Walter Mondale. A- Revenue rose nine percent in FY1989, to $990.79 billion. Q- How close to a trillion can you get? A- But revenue doesn't have to come from taxes. Democrats can always squeeze revenue out of the portion of the budget allocated to defense. In the fall of 1989 I remember Senator Bentsen claiming that since we borrowed five hundred billion from foreign investors, half of the entire budget at that time, we had lost control over our destiny and had become totally dependent on foreigners. Q- I remember that was the year I first found out about the use of our Social Security trust funds to mask the real deficit. I felt really betrayed when I read somewhere that the real FY 1989 deficit was actually $220-230 billion, instead of the $140-$150 billion publicized. A- Speaking of Social Security trust funds, I don't want you to be disillusioned again but I hope you realize the surplus contributions that are paid via the payroll tax are not actually invested as you and I would think of it. Q- I know. The government is using the money.
A- Borrowing it, which is a type of investment. By current law the government is restricted to investing in treasury bonds which in effect means loaning the trust funds to the government to be used for its current expenses. Pay-back day, when those IOUs are due, will be a huge problem. The government will not renege on its commitment but will have to either raise taxes or borrow more or even issue more bonds to fulfill its obligations to future retirees. Q- What can be done? A- The first choice would be for the government to trust citizens to keep those payroll taxes in their own hands and invest them for their own future well being. Q- At the moment it doesn't look like that's going to happen any time soon. A- Another proposal making the rounds is for the government to invest prudently and become a coupon clipper for its retirees. Q- What do you mean? A- The government, instead of spending the payroll taxes of workers to run its day to day operations, could invest the trust funds in productive America—company stocks, research and development facilities, manufacturing plants and so forth. Q- That would be socializing the country. The government would soon own what was once private property. A- I agree. Since privatizing Social Security would mean socializing the rest of the nation, then perhaps it is time to look for a third alternative. It has been suggested that Uncle Sam invest in its own capital projects. Of course this would involve separating the government's capital spending from its current spending. Q- You mean institute a capital budget; one that considers outlays for capital assets as long-term investments and labels them accordingly? A- Yes, but government would still take the money and Washington D.C. bureaucrats would still decide how to spend it. A fourth choice would be for the federal government to give trustees authority to invest in state and local government bonds, especially those earmarked for capital investment like schools, police stations, libraries, drug treatment centers and shelters for the homeless. The huge amounts of cash could command large discounts. Investments would be closer to the people and they would sense more control over their retirement savings. Those savings would actually be saved—invested with real pay-offs realized over an extended period. The trust funds would be tied to a tangible and independent source of funding where the
bonds would be paid off because of the local government's ability to charge tolls and user fees and its ability to appeal to a local tax base independent of the federal government. Funding would be according to the people's priorities. It would also eliminate the approximately two and a half billion provided by the federal government as grants to aid local and state programs. Q- Wow! Politicians should jump at the chance to finance the needs they keep talking about. And baby boomers should see it as the best hope of having something in the kitty when they retire. A- The opposition would come mainly from those with plans for the trillions that are currently building up in the trust funds. All those grandiose plans—nationalized health programs, subsidized housing, federal welfare and new educational bureaucracies all controlled and funded on a national level—would have to go by the board. Q-I see what you mean; it's not likely. I seem to recall a study of one hundred fifteen nations that found that a one percent increase in spending by any government resulted in a one tenth of a percent reduction in economic growth. A-That study was done by economist Gerald Scully and if you relate its findings to the U.S. economy with a current GNP of over five trillion, a one percent increase in spending is equal to a reduction in growth of about nine billion a year—not a trivial sum. But it shrinks in importance when compared with the two hundred fifty billion we are now paying every year in interest costs. In fact some people have the annual cost of carrying our gigantic national debt at three hundred billion. Interest costs are certainly headed in that direction. Now that foreigners purchase so much of our treasury debt a lot of that interest is no longer being paid back to American citizens and recycled in our economy. Q- Just what percentage of the national income is the government spending now? A- Figures on government spending vary depending on what is included. In the 1950s and 1960s spending by the federal government averaged close to nineteen percent of GNP (gross national product). Starting in 1970, federal outlays rose consistently at a rate of about 1.8 percent per year. Then suddenly in 1979 the spending rate skyrocketed 4.6 percent in one year to twentythree percent of GNP. The latest projection in mid-1991 shows we're now spending in the twenty-five percent range. Q- I thought people voted for Ronald Reagan in 1980 because he promised to curtail government spending. A- You're right. Ronald Reagan campaigned with a promise to bring spending down to the nineteen percent range again but instead spending climbed to twenty-five percent of GNP and is
still higher than federal revenue. We naturally get a deficit when spending is higher than revenue, as it has been at many times in our history. Q- Has the federal government ever spent a greater percentage of our national income than it is currently spending? A- Yes. During WW II the government was forced to spend a far greater percentage of the national income. Spending in 1945 amounted to 42.7 percent of the nation's GNP. In 1940, just prior to WW II, the federal government was spending only ten percent of GNP. But we can go back even further to a time when the government spent only three percent of GNP. Q- Perhaps I should have inquired about the amount the government has recently been taxing in relation to spending. A- That is a different question, no kidding. The federal government has been taxing pretty consistently in the twenty percent range and spending in the twenty-one percent to twenty-three percent range. Although the federal budget has shown a deficit thirty out of the last fifty-one years, we thought the widest disparity between revenue and spending had been reached in fiscal year 1986 when that year's deficit weighed in at over two hundred twenty-one billion. Q- Thought? You mean we've exceeded the 1986 record? A- By about fifty-five percent if projections for FY1992 hold steady. I sat in on the Joint Economic Committee's hearing on the Mid-year Economic Outlook on July 23, 1991. Q- You mean you were in Washington, D.C.? A- I sat in via C-SPAN—the cable satellite public affairs network which allows any American citizen who has access to cable TV to be present on the House floor whenever Congress is in session and to be an attendee at conferences and gatherings all around the country where public policy issues are being debated. This new technology leaves no excuses for citizens to remain uninformed or to claim they don't have easy access to unbiased information. I think C-SPAN is the best thing that has happened to this country in a long time and I said so in the dedication I made to the network in 1988 in my book titled The American Deficit: Fulfillment of a Prophecy? Q- No kidding. What’s this prophecy stuff? A- I came across a 1917 quote from Lenin that I thought was relevant: “Germany will militarize herself out of existence, England will expand herself out of existence and America will spend herself out of existence.”
Q- Well it looks like he was a good prophet if nothing else. You know, I've got to admit I'm as bored as the next person by budget-talk, but I'm convinced the economy is affected by the budget deficits. So I'd like to know what went on during that hearing you observed on Cspan. A- Sometimes you simply have to buckle down and make yourself hone in on a situation— especially one which has such a bearing on all our lives. Q- Yeah; I know. Anyway, who testified before the Joint Economic committee? A- Lots of people. I'll give you a blow by blow of the inquisition of Office of Management and Budget director, Richard Darman and then a separate inquisition of two of the President's Chief economic advisers, Michael Boskin and John Taylor, both previously Professors at Stanford University in northern California. Q- How about the Boskin-Taylor testimony first as I know more about those two gentlemen. They are from this area and I understand Professor Taylor is on his way back to Stanford for fall of 1991 anyway. A- Fine. Senator Sarbanes began be ridiculing the administrations contention that the recession is “short and shallow”, claiming politicians should have developed compassionate responses to the unemployed much earlier. To Mr. Boskin's contention that the unemployment rate had not yet reached the numbers that would trigger more of a response from government, the Senator retorted that the unemployment rate is a poor indicator of economic hardship and that the labor force had grown only half as fast as earlier predicted. He referred to a claim by Commissioner of Labor Statistics, Janet Norwood, that if there had been normal growth, unemployment would actually now be 7.5 percent but payroll had in truth fallen by one and a half million between July 1990 and July 1991. Q-I think Senator Sarbanes is right, because I know a lot of hardship doesn't show up in government statistics. Also what about discouraged workers or part time workers? In 1990-91 they accounted for ten percent of the official rate. A- That was a point made by Senator Sarbanes. He would have liked to see those discouraged and uncounted workers in what he calls a “comprehensive rate”. Q- Did anyone know how many people had exhausted their unemployment compensation over the previous twelve months? A- Between July 1990 and July 1991 statistics show that 2.3 million unemployed workers exhausted their benefits. When the bill to extend benefits was debated before Congress in the summer of 1991 it was asserted that 1.4 million were due to run out of benefits in a few weeks. And even if the economy turned the corner in the summer of 1991, as spokesmen for the Bush
administration kept asserting it would in their testimony, Senator Sarbanes’ point was that the number of long term unemployed would continue to rise. Q- Why didn't the safety nets kick in? A- They were set to start at the appropriate time. When the numbers determined by formula are reached, they automatically trigger extended benefits. Q- I don't know what's so appropriate about some impersonal formula. Employers pay money into a trust fund to provide benefits for their employees beyond twenty-six weeks. Why isn't that money used for the intended purpose? A- Exactly Senator Sarbane's point. Supposedly the trust fund you're talking about had $7.2 billion in it on October 1990 and continued to build surpluses throughout 1991. Everyone agreed losing money from the trust fund would provide stimulus for the economy. Q- I don't get it. Then what's the problem? That trust fund should be relieving hardship just as it was set up to do. It's obvious government programs are not doing their job. A- We have a semantics problem. Funds aren't physically present in the trust fund. In a unified budget they are used to off-set other spending by government and to mask the deficit. It's legitimate. Congressman Armey of Texas, a former economics professor made what should have been the telling point when he said, “There are no monies in this trust fund, nor any other trust funds. All other things constant, anybody that received increased expenditure benefits under the authorization of that trust fund, could only do so because we borrowed more money. That should be in the record.” But Senator Sarbanes paid absolutely no attention to Armey's remarks and continued to berate the build-up in the trust fund as if the dollars were actually real and untouched. Q- On the other hand, I think everyone realizes when you're discussing government funds the government can always print the money that is supposed to be there. In this case Senator Sarbanes only wants it borrowed. A- I'm surprised and a little shocked at how calmly you say that. I would expect any and all taxpayers to be up in arms upon discovering monies have been tampered with—monies that were collected for a specific purpose. To use them to disguise other spending in a unified budget would be unethical and possibly criminal. Q- But as Mr. Armey said, all government trust funds are in the same boat because the government must invest trust funds in treasuries and a treasury is an I.O.U. allowing the government to use the funds. Semantics! Right? A- Right! I'm just surprised at your sophistication and calm.
Q- I'm wondering if unemployment benefits were extended beyond the twenty-six weeks during other recessions. A- As a matter of fact they were under Ronald Reagan—a point which Senator Sarbanes attempted to hammer home to Dr. Boskin. Q- What was Michael Boskin's reply? A- He pointed out that in 1985, when the extended benefits were discontinued because the emergency was considered over, the unemployment rates were higher than in the summer of 1991 when the Senator was calling emergency. The Senator wouldn't listen and kept stressing the hardships and appealing to emotion. He kept pointing out that unemployment was much higher than the national average in certain pockets around the nation. It was then 9.5 percent in Massachusetts and Michigan had rates over nine percent. Q- Weren't there a series of tax manipulations recently? That always causes a slow down in growth. It might be more than coincidental that Michigan, with a nine percent unemployment rate, produces luxury automobiles whereas luxury boats used to be a thriving business in Massachusetts, the state with a nine and a half unemployment rate. Anyone can see the luxury tax is hurting. A- According to Texas Congressman Dick Armey, we're losing five dollars for every one we're taking in because of this luxury tax. And if that weren't enough damage, Congress is also discussing a new gasoline tax. But to get back to Senator Sarbanes—he kept harping on foreign money going to overseas emergencies. “You're prepared to call an emergency to provide funds abroad, but you're not prepared to call an emergency to provide help at home.” He kept saying this to Boskin. “Some of us aren't prepared to leave long-term unemployed out there twisting in the wind.” He was alarmed that some workers lost their jobs when the unemployment rate was 5.6 percent and instead of things getting better in the meantime, things have gotten worse. What's to be done, now that the unemployment rate is seven percent? Q- Why have we started to look at the government as a daddy or mommy? The United States of America has never been anyone's motherland or fatherland. Why has this generation of Americans failed to grow up? A-Maybe because government starting taking their money, and telling them not to worry. “We'll take care of everything for you and much better than you can do for yourself.” Q- In retrospect that may have been stupid but I guess they were looking for an easy way out. Their parents went through the depression and they were ready to exchange their freedom and independence for security.
A- Not so much stupid as gullible. Senator Sarbannes kept returning to the supposed balances in the trust fund. He didn't seem to believe Mr. Armey's contention that the funds were no longer there. He asked, “Why should these unemployed workers be cut off from extended benefits?” Q-Maybe he didn't understand the answer? A- What’s not to understand? Armey is a Congressman from Texas and former economics professor and Dr. Michael Boskin is a Stanford professor and economic adviser to the President. He explained that the triggering formula anticipated not just the levels of unemployment but the rate at which the unemployment figures change. Q- Actually I wouldn't accept an answer like that either. Programs kick in at a certain point according to a bureaucratic sacred formula. I join the employers who are already hopping mad. The system is obviously not working. Americans pay and pay and never get anything back. I say forget it. This is blatant abuse of employers' contributions. What's wrong with everybody? A- Well you sure won't be satisfied with Boskin's wimpy answer. Q- Try me. A- He said we started from the best labor market since the early 1970s and he wouldn't support extending benefits unless the spending was accompanied by other spending cuts somewhere in the budget. Q- Did anybody on the panel accept that response? A- You know each member of Congress on the panel gets his own time to ask questions and carry on dialogue. This particular exchange occurred on Senator Sarbanes time. He pointed out that economist Paul Samuelson believes our unemployment system is not providing the stabilizing role that it has in the past. Q-To which Dr. Boskin replied? A- That states had changed their rules recently and they determine pretty much who qualifies for unemployment benefits and when. Ninety percent of unemployment contributions are distributed by the states and payments are being made, whereas only ten percent goes into the federal extended benefit program. He said the administration was concerned, but thinks there needs to be off-sets. He agreed that unemployment insurance is supposed to be an economic stabilizer and added that many transfer systems act in such a manner. Q- And for that you have to have a so-called emergency? A- This emergency thing is another example of the semantics games played in Washington DC. Unless an emergency is declared, by the terms of the 1990 budget compromise, off-sets, Hill lingo for spending cuts, have to be made in other programs in order to pay out these extended benefits. If an emergency is called, these off-sets do not have to be made. It's another example of
the significance of finding the right label. This is how things get done on Capitol Hill. It's not statesmanship. Q- On the other hand, that seems like a legitimate reason for not recommending extending unemployment benefits on an emergency basis—the administration wants to keep to the budget agreement and not increase the national debt any further. It probably looks to Dr. Boskin like an opportunity to get some spending cuts. A- One thing should be coming clear; you don't want government with all its fancy formulas and shenanigans handling your money. I've said this over and over and will continue to do so as long as I have breath, and that is that government can't possibly do things for you and your family as well as you can do for yourself and your family. Q- Didn't any other Senators question Dr. Boskin? A- Sure. Senator Ted Kennedy denied the recession was ending. He recited heart rending personal stories and even included a story of a family involved with the manufacture of sail boats, somehow overlooking the fact that the luxury tax he himself supported put the victim in his story out of business. Q- It would help if politicians would look for the cause more often instead of just rattling off emotional propaganda. A- You've got to remember Massachusetts lost nine percent of its total jobs in two years and according to some experts, its unemployment rate could reach eleven percent before the year is over. Even Republican Senator Robert Smith of New Hampshire backed Kennedy's observations by claiming the recession is the worst he ever saw in New England. Q- Isn't Kennedy the same man who berated junk bonds—the main source of financing for small businesses? But back to Senator Smith; the one from New Hampshire. A- Senator Smith attributed the depth of the recession to the lack of confidence in banks and the Savings & Loan fiasco. He also felt that not enough effort was being made to get rid of the RTC inventory. Then Senator Sarbanes wanted to know what was being done about the credit crunch. Q- And? A- Dr. Boskin described some meetings, saying an attempt was being made to urge the examiners to be more reasonable. He claimed the behavior of most regulators was too restrictive and that there was a real need to base policy on reality not unfounded fears that what occurred with the savings and loans would necessarily be repeated with other lending institutions. Q-What about the economy in general? A- Dr, Boskin admitted that in February 1991, he had predicted that the recession would be relatively brief and relatively modest; that GNP would decline and level off and improve in the
second half of 1991. He said predictions for the second half of 1991 had been revised by the troika. Q- What in the world is the troika? A- Troika, three, refers to the Treasury, the OMB—Office of Management & Budget and the Council of Economic Advisers. All three compiled the economic projections by consulting with private sector analysts. Dr. Boskin, by way of disclaimer, admitted projections are by nature inaccurate and that economics is not a precise science because there are always unforeseen events. Nevertheless, he said his predictions had proven to be accurate for the first half of 1991. He agreed with members of the panel that the length of the recession was in part attributable to hard to get credit which he blamed on several things. Capital ratios were recently imposed on banks to bring them more into line internationally and because banks couldn't raise equity to meet the capital ratios they were forced to cut back on lending. On top of this, the reunification of Germany took more of the world's capital than anticipated. Also he noted that state and local deficits have been in surplus during past recoveries but most states are having their own budget problems during this recession. The economies of New England, Michigan and California declined the most. In the previous recession the mid west was hit the hardest, but this time, with the exception of Michigan, it was spared. However the severity of all declines was reduced because of our improved trade balance. Dr. Boskin offered the following comparison: 1981-2 exports fell by over thirty billion at an annual rate which accounted for thirty percent of the entire 1981 decline. By contrast in 1990 exports rose by $fifty-three billion. He observed that declines in world wide growth could hurt our exports and that must be recognized as a potential problem. He noted that inflation has been in a down trend since the beginning of 1990. The unemployment rate rose from 5.3 percent to seven percent from July 1990 to July 1991 and is expected to average 6.6 percent in 1991 and 6.4 percent in 1992. Inflation has decreased to 3.5 percent in 1991 and will likely remain under four percent in 1992. Long term rates are down but not as far as expected. The real GNP is now expected to grow (differs from earlier projections) 0.8 percent in 1991— 3.6 percent in 1992 with consumer spending to be a driving force. The 1992-1996 outlook remains the same—2.7 percent annual GNP growth. He expected stability would wring out the uncertainty included in the interest rates and allow them to decline. The larger than anticipated budget outlays were attributed to deposit insurance …
Q- The savings and loan fiasco again. A- And to Desert Storm. The long expansion which had begun during the Reagan administration was stopped by both the Gulf crisis and the credit crunch, according to Boskin. Q-I'm always surprised that anyone takes the annual estimate of deficits seriously. I always hear that deficits are far greater than the original estimates. A-Today—on July,1991—the FY1991 deficit for the year ending October 1, 1991 is predicted to be anywhere from three hundred forty billion to three hundred seventy billion—far in excess of the previous deficit record of two hundred twenty-two billion set in 1986. When asked why the deficit was so far off last year's early estimates, Mr. Darman said deposit insurance of more than one hundred billion was not included in the early estimates and the economic forecast changed dramatically between FY1991 and FY1992. Receipts were short by eighty-eight billion. Q- You’re batting billions around like tennis balls. I guess it was blamed on the short and shallow recession. Didn’t Professor Taylor testify? A- Only briefly, although he was at Michael Boskin's side throughout. One comment I remember had to do with greater accumulation of inventory. Q- Inventory had been excessive and not moving during the first half of 1991. A- Anyway, John Taylor said inventory should be watched as a sign signaling faster growth in the economy. He broke with other experts I have heard on the subject when he insisted we were below our potential before the recession began so he sees room for growth. The gap between where we are now and our potential seemed promising to him. He anticipated three percent growth during the nineties because of this potential for growth. He told the panel that the Economic Council is about a half a percentage point higher than private forecasters and one-half of one percent can be significant. He related that not so long ago Italy had a GNP amounting to only forty percent of the GNP of Britain and now it has a growth rate one-half percent higher than that of Britain. Discussions are the way to get at the heart of technical differences and he seemed content that last year's budget compromise would mandate discussions because of the restraints it put on total spending making it necessary to trade spending for cuts. He got talking about trade policy and the necessity in that area to constantly balance different interests. Professor Taylor thought trade should be targeted, barriers further reduced and he advocated decreases in the capital gains tax in order to stimulate growth. He also favored family savings accounts to encourage capital formation. He suggested that the growth rate of income (profits, wages and salaries) had been pretty accurate, and by way of illustration he said profits will rise to 5.3 percent of GNP in 1991 and 5.6 percent of GNP in 1992.
Q- Private forecasters mostly agree. A- Richard Darman defended the capital gains reductions, although others seemed to think they would never fly. Darman said it is not a rich man's tax cut because $4.8 billion of the projected savings would come from those making less than fifty thousand a year. Q- Anyway it is less than half of one percent of the total package and doesn't by itself spell failure. A- You’re right. Congressman Armey praised an article written by Senator Gramm and published as an editorial in the July 23, 1991 edition of the Washington Times. Q- Was it on the economy? A- I didn't read it but the Senator claimed that unemployment rates were low during Ronald Reagan's eight years because the Reagan program was a program of growth. Q- But under the Reagan administration extended unemployment benefits were paid. A- That was pointed out by members of the panel and Michael Boskin countered that at the time of those payments the unemployment rate was eleven percent. Senator Sarbanes agreed without acknowledging the point that in July 1991 when he was grandstanding, unemployment rates were only seven percent. Q- You can forget that only business if you or someone you know is unemployed—that’s one hundred percent unemployed right there! A- Everyone was taking unemployment seriously. Senator Kennedy put on an amazing display of concern. “They just don't know how they're going to feed their families,” he said oh so woefully. Q- Maybe Senator Kennedy should set up a private fund to help out the families with whom he comes in contact. Hey—didn't you tell me a story once about Davey Crockett's attitude toward the public trust? He chastised his colleagues when he was in Congress over some spending scheme--or something like that. A-It's one of my favorite stories. In the 1800s Davey Crockett was Tennessee's representative to Congress. One day a bill was presented calling for an appropriation of money for the widow of a distinguished naval officer. The speaker was about to put the bill to a vote when Davey Crockett stood up and said “I have respect for the deceased and sympathy for the widow, but we must not collect money from the taxpayers, one group of people, to give to others to whom it does not belong. This would be an abuse of our power.” He then offered to give a week of his pay to the widow if the other Congressmen would do the same. Q-I'll believe the wealthy Senator's concern and the indignation of Jesse Jackson when I see them give a couple thousand dollars.
A- That’s a small percentage of both men's incomes. Q- I say let them put their money where their mouth is and help these people they claim to care so much about. Talk is cheap and as far as I'm concerned, actions speak louder than words. A- Senators Sarbanes and Kennedy reasoned that since Bush called foreign aid an emergency and asked for hundreds of millions of dollars without cutting the same amount from the budget; that was reason enough to keep on doing it. They reasoned; why not call it an emergency? Why cut spending? The devil with the budget deficit and the national debt! Let it continue to buildup and when the time is right we’ll look like heroes. As far as I'm concerned, they show absolutely no sense of responsibility—they behave like children in a school yard. I gave them credit for reasoning a moment ago but they don't actually reason; they react. “Bush called foreign aid an emergency so why can't we—nah, nah, nah, nah.” I am deeply ashamed for the people who elected them. Q- That's a little harsh, don't you think? A- You should have been there. Senator Kennedy mimicked Michael Boskin and made fun of the administration's excuses without pulling any punches: “We've got problems from over zealous regulators, so no credit out there, so business failures.” Kennedy staged an embarrassing show, chastising the academicians. I guess he's afraid his state's problems might reflect on him. When Senator Smith reiterated that the eight years of the Reagan economy was good, Senators Sarbanes and Kennedy said it wasn't Reagan's policy that was responsible for the low two and three percent inflation rates but the price of oil should get the credit. As for the twenty percent inflation and interest rates and fourteen percent rates of unemployment; they had nothing to do with the Carter administration. Q- Didn't anybody express alarm about the national debt which is fast approaching four trillion? I can't get it off my mind ever since you mentioned it. A-Senator Smith considers the national debt to be the number one crisis facing the country and he is anxious to deal with it. He realizes if the debt continues to rise, not only will jobs be eliminated but the other benefits Kennedy and Sarbanes like to tout will disappear as well. Senator Smith was aware that the interest on that debt is going to surpass what we spend on national defense. In passing he also pointed out that the luxury tax cost nine thousand jobs. A- The ranking majority House member, Lee Hamilton offered his observations about the Federal Reserve's role. He said Federal Reserve chairman, Alan Greenspan is aiming for zero inflation and projects annual economic growth of less than 3.6 percent.
Congressman Hamilton speculated that the Fed's monetary policy was opposed to the administration's goals for growth, as expressed by Michael Boskin. He questioned whether a 3.6 percent growth rate could be achieved with the Fed's policy. John Taylor broke in to explain “Our forecast for nominal GNP growth in 1992 is 7.5 percent. The historical regularity between M-2 growth and nominal GNP growth is the one that economist focus on—those growth rates being very similar over long periods of time, of course, in recovery and downturns, the differential between the two can exist. With 7.5 percent being our forecast for nominal GNP growth that is actually one percent above the upper range of the Federal Reserve target which is 6.5 percent for 1992. That does imply some conditional velocity increase for the growth targets to be consistent with our forecast…ranges are always conditional on velocity.” Q- What is M-2? A- Let's start with M1. M1 refers to the currency in circulation plus checking accounts, ATS, travelers' checks and so forth. M2 includes M1 plus savings and small time deposits, Eurodollars, overnight repurchase agreements and money-market mutual-fund balances. Then there is M3 which includes M2 plus large time-deposits, term repurchase agreements and institutional negative-only money market mutual-fund balances. Q- I'm sorry I asked! A- I thought Congressman Stephen Solarz of New York had an interesting comment referring to the credit crunch discussed earlier. He said the poor regulators get beaten up no matter what they do. First they're too lax and now they're too tough. What a job! Mr. Solarz pointed out that Senator Lloyd Bentsen was attempted to change the formula used to trigger the provision of unemployment benefits so it relates to the unemployment rate as a whole. He argues that “We don't want to diminish our sympathy for them and our desire to help.” Today the figures document the percentage of those that have unemployment insurance whereas those that don't have insurance aren't even counted. As things stand now, unemployment rates drop in the states where workers exhaust their benefits even though they remain unemployed and desperate. Q- So much for statistics! A- Michael Boskin [the Stanford professor and one time presidential economic adviser] explained that the various states tighten eligibility benefits on their own. When pressed he estimated that one million workers would exhaust their employment benefits over the year. Congressman Solarz suggested maybe it was three million and after a pause Dr. Boskin concurred. Q- That's some difference!
A- That’s because the second figure also took those that had already exhausted their benefits into account. Q- How much money are we talking about to extend unemployment benefits? A- You should have been on the panel—someone asked that and the answer was four or five billion and added that the trust fund amounted to eight or nine billion. Now you’ve got differences in billions of dollars. Q- No kidding! Why not simply extend the benefits? Why talk about cutting other programs? A- You sound like Senator Sarbanes. Did you really follow what Congressman Armey said about there being only IOUs in government trust funds? Q- I understand, but I don't accept. The contributions for extended benefits should never have been counted as assets in the budget. I think all employers would agree with my viewpoint, and apparently the Senator's viewpoint. When taxpayers pay in for a specific purpose and it gets swallowed by the gluttonous Congress and its insatiable desire to do good we don't want to understand—we simply don't want to take it anymore. A- Well anyway the session ended with Senator Sarbanes dismissing Professors Boskin and Taylor telling them to go back and think about hurting Americans whose life's are being ruined. Q- Wait a minute—I thought you said Richard Darman, the one you said was once director at the Office of Management and Budget; also testified. A- At another session; yes. California Congressman, Bill Dannemeyer was one of the most interesting inquisitors at that session. He questioned Richard Darman, referring to him as “the chief fiscal officer for the Bush administration” relative to the administration's mid-year assessment of the state of the economy. Mr. Darman said, according to present projections the national debt for FY1992 “would rise from $3.545 to $4.012 trillion.” Mr. Dannemeyer answered, “If my math is right, that's a total of fou rhundred sixty-seven billion.” Q-That's the increase in the national debt for one year? A- Those were Mr. Dannemeyer's next words. OMB director Richard Darman answered “That's right,” to both questions. The increase in interest expense was determined to be forty-five billion a year. Mr. Dannemeyer claimed that “In February of 1991 the increase in revenue of all types, 1992 over 1991, totaled some seventy-four billion, including twenty-seven billion for Social Security, which we're not supposed to use to pay interest on the debt; leaving forty-seven billion of increase and now your figures show that currently, as of today, the projected income is down
another eighteen billion dollars, so the increase of revenue to the federal government, projected for FY1992, exclusive of Social Security will be twenty-nine billion". He went on to point out that the increased interest on the national debt is greater than the increase in projected revenue and that means we're digging a hole deeper all the time. "Isn't it about time we faced up to the reality that the budget agreement that you helped develop and get adopted has been a disaster for the economy of this country? When it was adopted you told the American public…the deficit for FY 1992 would be two hundred twenty-nine billion. That was last fall. Now you're telling us…it's three hundred forty-eight billion—that’s one hundred nineteen billion more. We raised taxes by one hundred sixty billion over five years and we're supposed to get increase revenues for the federal government from the raise in taxes and that hasn't worked out. Don't you think it's about time for you to come to the Congress and say if we want to have a realistic chance to salvage the decline in the real estate market in America we're going to have to reduce capital gains taxes. Wouldn't that be a constructive thing to do?" Q- What did Mr. Darman say to that? A- He said the administration has been trying to do just that and it doesn't get media coverage. A survey found that President Bush had urged a decline in the capital gains tax forty-two times in one month and it had only been covered once, according to Mr. Darman. He told Mr. Dannemeyer they had sixty-three or sixty-four votes to decrease capital gains in the Senate but procedurally Senators vote with the leader and it is stymied in the Senate. At the time the national debt was projected to increase by one trillion dollars over the next five years. Dannemeyer expressed disbelief that it would have been one and a half trillion without the 1990 budget compromise as Mr. Darman claimed. Mr. Darman responded “actually it would have been more”. That was when Bill Dannemeyer said facetiously to Richard Darman, “You are an amazing man, Mr. Darman. Just an incredible thought. The whole world is caving in on the fiscal policy you have crafted for this government, and you're sitting here in the attitude of equanimity with a smile on your face just as if nothing had happened…to be the chief architect of a fiscal policy which will result in an addition to the national debt of four hundred forty-eight billion dollars in one fiscal year, is not my idea of responsible fiscal policy…you as the leader on fiscal policy should get confrontational with the Congress of the United States over the issue of spending…to get the attention of the American public on who controls spending around here. Some people believe that because the Republicans have the White House, they control the level of spending.” He went on to suggest that Richard Darman should confront Congressman Panetta, “even though he is such a charming man,” because Panetta has the votes to deny the administration anything it wants to do. Q- Leon Panetta is chairman of the House Budget committee, right? And also your representative I believe.
A- Right on both accounts. Mr. Panetta came to Mr. Darman's defense saying he was not alone in pushing for that budget compromise, to which Mr. Dannemeyer informed Mr. Panetta that seventy-three percent of the Republicans voted against it to which Mr. Panetta replied (and I quote) “Well that was regrettable, because that's about the only damn good thing we've done in budgeting for a long time.” Q- I thought I heard on the news or read that the Secretary of Defense testified before the House Budget Committee in July 1991. A- As a matter of fact there was a hearing on July 31, 1991. Q- Hearing on what? A- Defense spending as contained in the FY1992 budget proposal—a second chance to make the 1990 budget agreement work. Q- Defense will definitely be the main whipping boy in all budget disputes from here on. Don't you agree? A- Absolutely, if the Congressional hearing held by the House Budget committee on July 31, 1991 is any indication. Q- Is my understanding of the budget agreement reached in the fall of 1990 correct? For the first three years of the five year plan the three categories; defense, discretionary domestic and entitlements are required to meet certain targets on their own without dipping into another category. A- That's essentially correct. The savings must occur in all three categories separately and individually. But, just as you said, to reach the targets for FY1995 and FY1996, appropriators already have their eye on the defense budget, hoping to cut a little more there to keep from trimming their own areas any further. After FY1993 the categories can be mixed. Q- I must be psychic. Who else would have thought Congress would consider rebelling against its own self-imposed straight-jacket? A- Very funny. Secretary of Defense Dick Cheney testified saying that already twenty-five percent reductions have been scheduled for the restructuring of our defenses. He reiterated a statement made by Chief of Staff Colin Powell that we are prepared to take the armed forces down to whatever the American people decree. Q- The troubling part of our system is that even the inept actions by Congress are viewed as if they actually are decrees by the American people. We have to remember when we elect our representatives that they stand-in for us, act for us and hopefully, act in the manner we would act, if we had thought out the problems. That's what a representative is supposed to do.
A- Well I'll tell you, I sure was not happy with the way my Representative conducted himself at the hearing, which he chaired. Immediately Leon Panetta asked Secretary Cheney, “Are we going to have to renegotiate the budget after the election?” He talked about the budget dilemma, as he sees it, and as he has always seen it throughout his career in Congress. Willis Gradison, the ranking member of the other Party and Mr. Panetta's counterpart on the budget committee, stated that, “I don't think there's a dilemma at all”. The task is straight forward. They have to cut spending; something Willis Gradison and Bill Frenzel before him, have seen, whereas Leon Panetta looks concerned and laments the hard choices and finds himself in dilemmas. He saw pressure growing before the end of 1993 to take defense allocations and spend them on our rapidly multiplying domestic needs. Q- He must be psychic too. A- He works like crazy, but it is painfully obvious he is in over his head. He exemplifies the Peter Principle, having risen to the level of his incompetence. Q- Don't you think that's a little harsh? A- I've followed this process—this absolute nonsense—for years now. I've written two books on the subject and I am thoroughly disgusted with inertia, lies, trickery, deception and perhaps most of all—incompetence—and I'm not referring to any one person here, but pointing the finger at the process and the entire Congress that is responsible for that process. Chairman Panetta freely admitted to the three hundred and forty-eight billion deficit anticipated for FY1992; the results of the first year of this new budget accord, and then unabashedly assured Dick Cheney that the deficit would be in excess of three hundred billion in FY1994. This is significant because now there’s precedent for domestic spenders to dip their fingers into the military till instead of making those hard choices Leon Panetta wrings his hands over but never does. Q- I thought hard choices was the code for taxes? A- Well somebody besides Dick Cheney better start cutting spending in a serious manner. Now we know who it's not going to be. Just see if you can listen to the following two quotes from the Chairman of the House Budget Committee and feel that we're in good hands in Washington, D.C.: “I just don't know where we're going to go?” and “I don't know where in the hell we go!” But it was painfully obvious where he wanted to go when he went on to suggest that Mr. Cheney was being recalcitrant even though Mr. Cheney told the Chairman if he fired every person on the defense payroll from Colin Powell on down “you'd still have a hundred billion deficit left".
Maybe every department and government program should follow the Pentagon's lead and take a twenty-five percent hit. Mr. Panetta chastised Dick Cheney suggesting that the carefully laid out six year defense budget should be more flexible and not cast in concrete. Q- That's because with the collapse of the Soviet empire everyone agrees we don't need a massive build up in the area of defense anymore. A- We haven't been building up for years. Secretary Cheney had some interesting charts. One looked like a pitch fork leaning against a wall. The handle represented the decline of defense with one prong rising from that decline representing the projected appropriations for ongoing defense technology in outlaying years before the 1990 budget agreement and the downward prong represented the trimming in the outlying years required to meet the targets mandated by that agreement. Another chart showed the decline in defense as a percentage of the national budget from fiftyseven percent in the early 1950s to eighteen percent slated for 1997. Q- You'd have to go back to the 1930s to find defense as a percentage of the overall budget that low. A-As a percentage of our GNP (gross national product) defense took twelve percent during the Korean war, 9.1 percent during the Viet Nam conflict, six percent during the Reagan years and is slated to be down to 3.6 percent by 1995-1996. Another chart showed clearly defense spending in relation to other government spending. Over the past ten years defense spending rose thirteen percent, domestic discretionary spending rose one hundred eighty-seven percent and entitlements rose four hundred forty-eight percent. Another chart showed a rising base line representing the defense budget adjusted for inflation and another almost level line showing what actually was allocated for defense. There was a four hundred ten billion difference between the two lines. Q- I'm surprised by that inflation thing, because I thought everything in government was adjusted to inflation. That's how they get away with calling increases in spending, cuts. But I'm not surprised or unhappy about the decreases in the defense budget. The Warsaw Pact collapsed officially on July 1, 1991. The Warsaw Pact had a hundred fifteen Soviet divisions on the German border poised to strike Western Europe which required us to have four and two-thirds divisions in Europe at all times with another five and one-third divisions ready to immediately join them. Now we can get along with half the divisions we felt we needed when the Warsaw Pact was active. We're talking about going from three hundred thousand military people down to 1one hundred fifty thousand. A- Dick Cheney told the Budget Committee how much of this and that was being cut back over a six year period.
Q- How much of what? A- Men and women—members of the volunteer forces for one thing. He said the plan was to muster out five hundred twenty-one thousand and to put that in prospective he reminded the panel that five hundred forty thousand were deployed in the recent Gulf conflict. Q- It’s no secret that many people go into the military, or any kind of government service because of the retirement benefits. A lot of people forced to retire early aren't going to be very happy about being pushed out. A- Even though many of these volunteers won't reach their twenty years of service, the Secretary wanted to make sure they are treated well as far as benefits go when they are released over the next five years. That will not be cheap. Pay levels had already fallen eleven percent behind comparable pay scales in the civilian sector. He also wanted to make certain the smaller force that is left is a quality force with good training, good facilities, good equipment, plenty of spare parts, better pay, better benefits and with a high morale. Q- I heard that about sixty percent of the volunteer force is married which means housing and facilities for children is an expense that can't be short-changed. A- Speaking of volunteer; Secretary Cheney was pretty incensed that Congress wouldn't allow any cuts in the Guard and Reserve while taking down one-third of active forces. He had some good points about how they interacted. Q- I would think that Congress would realize it doesn't have time and certainly doesn't have the knowledge or even the facts to micromanage everyone else's department. A- Besides saving on personnel, instead of going ahead with twenty-three Trident submarines the defense department is stopping with eighteen; they're going with fewer ships and aircraft carriers than previously proposed—and tanks. Q- They had an inventory of eight thousand Abrams tanks and only lost eighteen in the Gulf. I guess they can make do with 7,982 without building more. Now if they'd only cut back on those expensive B-2 bombers. A- Cheney is holding out for seventy-five B-2 bombers as planned and I don't see how you can argue with his reasoning. We've invested ten years and thirty-five billion in developing the B-2 and have fifteen aircraft to show for it now. If we spend the other half of the money we get sixty more aircraft. Q- That's like getting a seventy-five percent discount or getting the first dozen for one price and getting an additional four dozen for the same price. That’s buying your first fifteen for thirty-five billion and with the second purchase of fifteen they'll throw in an additional forty-five B-2s for free!
A- Spoken like a true American consumer. Q- Where's the bargain in the F-22 fighter and the SDI? A- The bargain is in what the technology saves on a real battlefield, but I didn't hear anything about dollar savings in the short-term there. In fact in the FY1991 budget proposed by the Bush administration, there was a twenty-two percent increase for SDI over the previous year which amounted to, as these things go, a mere $4.6 million. The argument used at the time was that we spend three hundred billion to defend our interests around the world, but we spend nothing to shield our own land. SDI was considered top priority. Q- Don't you think it is possible to cut more out of the defense budget? A- Of course it's possible but members of Congress cry bloody murder when Secretary Cheney tries to close bases, shut down manufacturing facilities and reduce troops in their areas. Q- Congresswoman Pat Schroeder addressed the AFL-CIO at the end of July 1991 and made a big deal about base closures in this country. She won the hearts of the working men and women in her audience when she claimed military base closings were decimating our communities and putting people out of work. She got all kinds of applause and cheering when she asked, “Instead of closing bases at home why don't we close bases overseas?”. A- Those are the kinds of antics that make me, and probably everyone else, despise politicians. It seems inconceivable that serving on the Armed Services committee in the House, as she does, that Patricia Schroeder could be unaware that already two hundred seventy-five overseas facilities have been slated for closure. In fact fourteen percent of our overseas bases are being closed as opposed to the nine percent slated for closure at home as of July 25, 1991 when she was giving her address. That kind of grandstanding falls somewhere in the range of out and out lying, distorting, misleading or ignorance and I would much prefer to believe the later—although I don't! Q- I heard that speech and Congresswoman Schroeder was also cheered when she suggested we curtail foreign aid and keep those dollars here to help Americans in need. A- Foreign aid has always been a target of the general public even though its portion of our budget is relatively miniscule. The U.S. government provided billions of dollars in taxpayerguaranteed credits for grain purchases just before Iraq invaded Kuwait. At the end of 1990 the Bush Administration decided to do the same thing with the Soviet Union, with guarantees of from one to three billion in farm credits. Additionally the Soviets will have access to US Export-Import Bank loans, equal tariff treatment on their imports and possible investment insurance.
However, pouring money into a still unreformed command economy alarms many who believe that financial assistance may well impede rather than accelerate fundamental economic reforms. Q- Where is the incentive to cut back on the Soviet military-industrial complex? A- Exactly. Our assistance surely strengthens the control of central authorities at the expense of the fifteen more democratic republics. But the larger question concerning opponents of aid revolves around our priorities. What about homeless Americans, starving Africans and struggling democracies in Eastern Europe? What about our own deficit? Already American tax dollars have been unable to stretch to cover needs at home. Q- What about the United Nations? A- According to a Wall Street Journal article written in the fall of 1986 by Kishore Mahbubani, Singapore's Ambassador to the United Nations, the United States, at that time, was being subsidized at the United Nations by other member countries. Q- How did he come up with that accusation? A- U.N. assessments are made on a complicated set of calculations based on a country's GNP (gross national product) and population. As the richest nation in the world the U.S. should have been shouldering twenty-eight to twenty-nine percent of the U.N. budget, according to Mr. Mahbubani, but because of a ceiling written into the U. N. charter the U.S. was only assessed twenty-five percent. Mr. Mahbubani's logic was curious. Apparently he wanted us to believe a ceiling on the amount required of the largest contributor (U.S.) amounts to a special preference. Q- Right! I would imagine all other one hundred fifty-eight nations already enjoy the protection of that same ceiling. A- By the way, these were the assessments made on the five top contributor nations in 1986: (In millions) U.S. $210, Japan $76, USSR $71, West Germany $58 and France $45. In 1946 there were one thousand five hundred forty-six U.N. employees. Forty years later, according to Jose S. Sorzano, former Deputy U. S. Representative to the U.N., “The entire Secretariat employs fifty-two thousand civil servants, compared with a total of four thousand five hundred in our State Department. “Salaries are about eighty percent of the U.N. budget. There are twenty-eight under secretaries-general; the sort that retire with a lump sum of three hundred fifty thousand after serving thirty years, all the while enjoying plush salaries. Q- Talk about waste! A- The waste fighter himself, columnist Jack Anderson reminds us that paper work at the United Nations is horrendous. Each page of output must be translated into six languages so it is no wonder each page ends up costing five hundred eighty-eight dollars. And, as in all bureaucracies, employees are eager to churn out the paper work in order to justify their existence and their high salaries.
The regular budget has more than tripled in the past ten years thanks to the proliferation of smaller less developed countries whose goal is to use the U.N. as a political channel for economic assistance. These countries, as a matter of course, inflate the organization's outlays by voting expensive addons with no special regard to those larger developed countries who must supply the cash. Q- Sounds vaguely familiar. A-Growth without proper coordination means costly duplication of programs. Q-Sounds even more familiar! A- More boards, more committees, more commissions, more task forces, more meetings inevitably mean more documentation and more employees. More, in the words of a member of the Secretariat for eighteen years “people running around doing nothing”. Q- I've heard critics of the U.N. say we are purchasing the rope and letting the U.N. hang us with it. We supply the most money and reap the most criticism. A- There has been some truth to their contention. The U.N's Department of Public Information publishes two periodicals and over two million documents on an annual basis, operates sixty-six information centers and broadcasts on Radio Perspective to one hundred sixty-seven countries in twenty-five languages. Studies have shown a distinct anti-American bias in all this information. Q- Why pay to be trashed? A- On the other hand, supporters point out that the U.S. has highlighted violations of human rights by Cuba and by the Soviets in Afghanistan and the leadership in Iran. Q- I personally think the U.N. might be a good place to get serious about our budget deficit. A- Well, members of Congress agreed with you and on October 25, 1986 they decided to ignore a little more than half our bill and allocated only one hundred million towards our assessed dues. Q- If I’m not mistaken, that was the year of our then historical budget deficit of two hundred twenty-one billion dollars. A- No doubt that had a lot to do with it. Anyway we got the attention of the United Nations because on December 19, 1986 the General Assembly passed new legislation regarding budget proposals. The CPC, Committee on Programs and Coordination, is a twenty-one member committee charged to provide recommendations on the size and limits of the U.N. budget, the priorities of the U.N. and the problem of add-ons. By the terms of the new legislation, major donors to the U.N. will have an influence on the CPC. Since decisions must be unanimous, each member in effect now has a veto.
Q- So we paid up? A-Yes, but at least we got some concessions for our delay. Q- Pay! Pay—all we do is pay! When you add state and local income, property, sales and all other taxes on top of federal taxes, the average American has little more than half his income to budget for his own personal priorities. How does the tax bite on American citizens compare with the taxes imposed by other countries on their citizens? A- Taxpayer's organizations claim we work for government until May 8th every year. Some say serfs in the Middle Ages had more time to work for themselves. Not surprisingly the socialized Scandinavian countries that offer the most services also impose the highest taxes. Most industrial countries rushed to follow our lead when we cut marginal income tax rates in this country via the 1986 tax reform. Q- I've noticed that bold is the code word for raising taxes. A- Or hard choices. A couple years ago black box was D.C. lingo for unspecified but necessary cuts. There was a lot of speculation about the black box used in coming to terms with the FY1990 budget. Twelve percent of the budget and sixty percent of all programs were in that black box. It was rumored to provide revenue from cuts in either agriculture, the administration of Medicare or from postal reforms with some people betting on all three. Q- I remember that. It was the year everyone was watching two minute segments about the budget process on the nightly news as deadlines came and went. A- There was finally a two thousand page reconciliation bill accompanied by report of fifteen thousand five hundred pages. There were way too many irrelevancies and hitchhikers making the bill hardly recognizable. Q- That's unconscionable. A- A lot of our Representatives thought so too and they spoke out on the House floor. Bill Alexander of Arkansas wanted to submit a bill to redefine the meaning of the term deficit. He wanted it to include the federal deficit—not camouflaged by the Social Security trust fund surpluses. Harold Rogers of Kentucky listed as gimmickry, “complex baseline projections, pay-day shifts, rosy economic forecasts, off-budget accounting tricks, trust fund surpluses to mask the true deficit and so on”. They talked about Medicare payments to health care providers which were delayed two days to produce a paper savings of five hundred million. Then payments were suspended at the end of FY1990 for an additional five days and another paper-savings of two billion. And those agriculture deficiency payments were moved back to FY1989.
Q- What were the reforms at the post office? A- Off-budget postal service payments to the Department of Labor for the workers compensation fund were speeded up a few days so that they fell in FY1990 rather than FY1989. A user fee on employers who maintain pension plans for their employees, which Mr. Rogers claimed didn't belong in this bill. The problem, according to Mr. Rogers, was that Gramm-Rudman focuses on one year targets rather than overall deficit reduction. He was concerned about our dependence on foreign investment to finance our spending and about the expansion of Medicare which he saw expanding by eight or nine billion over the next four or five years. William Clay of Missouri endorsed pension provisions in Title 3, pointing out that pensions are workers' problems, not tax problems. He was incensed that employers prematurely terminate pension plans to recover excess monies and reminded his colleagues that pension plans supplement Social Security and are not meant to benefit corporations. He pointed out that since 1981 twenty-one billion worth of pension money had been converted to other purposes. He advocated reform to prevent pension reversions from continuing to deplete our nation's capital and savings. On the other hand, Illinois Congressman, Harris Fawell said employees were being hurt due to incessant tampering by Congress. Employers are leaving the defined benefit system and shifting risk to the employee. Likewise Cass Ballenger, a businessman and Representative from North Carolina, set up a pension plan for his own employees. He spoke from experience when he told his colleagues that these “amendments are going to force underfunding of current plans and destroy incentive for new plans”. With ERISA (Employee Retirement Security Act of 1974) he changed his own employees to an ESOP (employee stock ownership plan). He bought into my preachment that people always act in their self interest when he cautioned that if an employer can't get out any excess funds he will make darn sure he doesn't put any in. Sure, the PBGC, Pension Benefit Guaranty Corporation, the government insurer of private pension plans, will take the brunt. The only problem is that the PBGC is really you—the taxpayer. Marge Roukema of New Jersey was also against the pension amendments, claiming they would disrupt private plans and change ERISA law. In her words, “These amendments violate the bipartisan nature of pension law.” She was alarmed that non-germane amendments were hitching a ride on a budget agreement. Q- I know her. She's a great watchdog for business interests.
A- Business should be everyone's interest and so should fairness. Her debate got away from the budget but in a way that was the point—the proposal she was so up in arms against had nothing to do with the budget business at hand. In other words it was not germane. Q- You've got me curious. What made her so mad concerning those pension amendments? A- She was trying her darndest to prevent the imposition of more regulation and costs on the backs of small business people. She warned against an amendment which would require employee representation on any board of trustees, against prohibiting reversion to employers of excess pension monies and against new ERISA report filing fees of two hundred dollars per each employee, which she said was another tax! Mrs. Roukema claimed no advance notice was given of hearings on these reforms and that to change the present fiduciary pension laws would put labor management relations in turmoil. She insisted that what was being proposed was a very radical change and she predicted if these amendments became law; the public would be more enraged than they were when they got wind of the catastrophic-health-care bill. William Ford of Michigan expressed his resentment over quick policy decisions tailored to fit specified numbers. He said federal employees had given already and they wouldn't concede any more. He is chairman of the Education and Labor committee which deals with civil service and has, he said, saved $1.7 billion by taking post office off-budget and restricting lump-sum withdrawal of retirement benefits. Q- I've heard the term point of order used in connection with the budget. What does it mean? A- Point of order refers to a Senate rule whereby a Senator can declare legislation, usually in the form of an amendment which is tacked on to original legislation, to be non-germane, unrelated, or extraneous. Do you remember the context in which you heard the term? Q- The example I'm thinking of occurred a couple years ago. I remember a point of order was raised by Senator Robert Byrd of West Virginia with regards to the capital gains reduction proposal and I remember at the time wondering what he meant. A-That proposal was tacked on to the Senate reconciliation bill in the form of an amendment advanced by Senator Packwood of Oregon. By raising the point of order the Senate avoided bringing the capital gains legislation to a vote. Senator Byrd was aware that it would have garnered fifty-seven votes but reasoned it would take sixty votes to overturn his point of order. The House, for better or worse, does not have such a rule. Q- Isn't it better to raise taxes now rather than pile up debt for future generations to deal with? A-The 1983 Social Security reform raised the payroll taxes significantly, precisely to avoid placing a gigantic burden on future workers. Unfortunately, as it stands now the system is destined to collapse of its own weight. Those widely touted surpluses will be exhausted quickly around 2020 and young workers can reasonably be expected to rebel.
Q- Wouldn't you say whenever people talk about putting burdens on future generations that they are really referring to the Social Security system? A-I think you're right. Social Security and Medicare are the programs that switch the largest burden onto future generations. The Democrats have long counted those programs as special feathers in their cap, whereas the Republicans can (but they don't dare because it would be unpopular) point to their own warnings over the years that the programs would become too large, too costly and even unconstitutional in the promises they make to be kept by future generations. Q- It's hard to know who to believe with the Republicans blaming the Democrats and the Democrats pointing a finger at the Republicans. A- I've followed this government spending issue closely for several years now and I have no hesitation in stating that over and over the Democrats have initiated costly new programs and overridden Republican opposition to more and more spending. Q-But at least they were willing to raise taxes, also unpopular, to pay for the spending. A- Some of them sometimes and in this they were constantly blocked by the Republicans. American voters played one Party against the other and got what they asked for; expanded programs without the pain of paying for them; in other words the national deficit. Let's put the blame where it belongs. The Congress will have an incentive to trim budgets only when the public is ready to take the deficit seriously. Q- Going back to our Social Security discussion just for one minute. If contributions to Social Security via the payroll tax are kept in a special trust fund, at least on paper, does that money collect interest—also on paper? If so, who pays the interest? A-The government pays interest which of course means the taxpayers. Q- If the government pays the interest earned by the Social Security trust funds, are those dollars treated as income or out go by the government? A-That is an interesting question. If the trust funds were kept in a private bank, for instance, of course the interest paid by the government would be entered as a government liability. But since, in effect, the government is paying itself, the interest earned by the Social Security trust funds is treated as income under intra-government transfers. Q-Isn't that deceitful? It must skew the deficit figures. A- Many people believe the current accounting practices of the federal government are indeed deceitful. Accounting gimmicks have been used in attempts to meet the targets mandated by the Gramm-Rudman legislation.
The push to take Social Security and other trust funds off the budget came to a head at the end of 1990 and the Social Security trust funds will not be used to mask the deficit in the FY1992 budget proposals. Q-How much larger would the budget deficit be if trust fund interest was not treated as extra income? A-The build up of Social Security reserves and interest accrual accounted for a phony seventy billion on the plus side of the accounting ledger during FY1989. If one were to count the Highway and other trust funds over the past ten years there would be a minimum of one hundred seventy billion in concealed debt. This would certainly show more accurately the amount by which our deficit is increasing. Q-Even if each year's budget deficit is smaller—meaning the amount of government spending in relation to government revenue is narrowing every year, still the overall debt owed by future taxpayers continues to increase. Isn't this so? A-That is absolutely true. The interest alone on our national debt is the second largest item in the federal budget. Interest is a cost to the taxpayer for which no return is even hypothecated. Interest payments must be made as long as there is any debt. Q- You mean our problems won't be over when we have a balanced budget? A- A balanced budget means one year's outgo didn't exceed its revenue. We will only have balanced one year's budget. Q- Have there been any recent attempts to change the budget process? A- One Senator made an interesting suggestion which would make the budget process more truthful. He would like to see the term deficit redefined to any increase in the debt. Q- I would think it would mean the gap between spending and revenue. From their collective experience of analyzing budgets year after year many Senators would have useful suggestions for reform. A- Not only Senators. On November 29, 1989 Charles Bowsher, Comptroller General, appeared before John Glenn's Senate Committee investigating fraud in federal government. He recommended that agencies have their own CFOs (Chief Financial Officers), and submit annual financial statements audited by independent auditors. Q-That sounds like even more money going out. A-Mr. Bowsher said now the government was spending in excess of two billion annually to improve the current systems and although his recommendations would cost enormous amounts of money they would end up saving money in the long run if they were implemented.
Q-Can you explain the budget process in a way that will keep people's eyes from glazing over? A-Probably not, but I'll try. But I want everyone to know there are probably not more than a dozen people in the House of Representatives that understand the process. The problem is twofold: (1) no one wants to work at anything and (2) in a government where ordinary people are at the helm, no process should be as complicated as both the current budget process and our tax code have become. Let's get the vocabulary straight. Omnibus refers to the practice of including many smaller bills in one as opposed to debating and passing them one at a time on their individual merits. Omnibus spending practically eliminates the executive role in the budget process. It is the function of a continuing resolution, CR, to authorize ongoing programs at old funding levels until new appropriations can be approved. Congress uses CRs as a way to give the executive all or nothing choices with no chance to negotiate and compromise as most people believe the framers of our government intended. A- CRs assure that there is no cut in programs as you and I understand the meaning of cut. That is what George Bush meant in his campaign when he told voters that the government tends to make its programs immortal. Q-How does anyone expect to reduce deficits if CRs are used? A- The economy has been growing and adding between seventy to eighty billion to federal revenue annually. If Congress had refrained from additional spending—just frozen its budget to the previous year's spending—the deficit would have shrunk by a goodly amount each year during the eighties without increasing income tax rates. Even with slower growth the government collected fifty-three billion more in 1990 than in 1989. Q- I confess to being a novice in this area, but from what I've heard in the popular media, a freeze is just not going to happen—ever! A- Maybe you're right. The budget process is complicated and so many people with such diverse interests are involved it is a wonder that any meeting of the minds takes place. Q-What happens if the Congress doesn't like the way the executive has decided to divide the money it has authorized? A-That happens every year. When the press talks about dead on arrival budgets it means the Congress wants major changes in the president's spending plans and will most likely return a budget of its own design to the president. Q- We keep talking about Gramm-Rudman—but I don't really know what it is. A-Sometimes referred to as Gramm-Rudman-Hollings legislation (named for its sponsors, Senator Phil Gramm of Texas, Senator Warren Rudman of New Hampshire and Senator Fritz
Hollings of South Carolina and passed in 1987) refers to an amendment to a measure raising the ceiling on the national debt which calls for the reduction of annual federal deficits in stages until no deficit exists. G-R-H targets were never met. Instead each year Congress simply amended the law. Every piece of legislation has its loopholes and G-R is no exception. By the terms of G-R, Congress is not required to reduce the deficit to a specific level, only to cut its spending by a certain amount. Q- I may not understand it very well, but that sounds ridiculous. A- This technicality means Congress must reduce spending in the fall, but can by supplemental appropriations, simply spend when it returns in January, what it cut in November. Q- As I said—ridiculous! By the way—what is a sequester? A- Sequester refers to automatic cuts in the budget mandated by the Gramm-Rudman legislation. A ten billion cushion is allowed on the target amount. However the Gramm-Rudman sequester is superfluous because of the October 1990 budget accord with its three separate categories and their caps on spending. Q- Has the government ever shut down because there was no budget? A-The government shut down in November 1981 at a cost of approximately sixty-five million in paper work and time lost. It shut down again in October 1984 sending 500,000 federal employees home. During the first two weeks of FY1986 there were two stopgap measures and on October 17, 1986 as FY1987 began, the government shut down once again and this time 400,000 government workers were sent home. Q- That time Ronald Reagan cried uncle. A- In 1987, shortly after the 500+ drop in the stock market on October 19th., President Reagan met with Congressional leaders in what has come to be known as the budget summit which reversed the sequester in late November. The deadline was met in 1988. Q- What is reconciliation? A- Reconciliation is the enforcement procedure of the budget process which enables Congress to enforce the spending and tax priority totals of a budget resolution. Q- How does the procedure work? A- In the House ten committees meet separately in an attempt to prioritize and adjust specific programs to budget targets. Q- So the redistribution of a trillion dollars comes down to a compromise among ten committees!
A- Remember the vast majority of that trillion dollars goes to non-discretionary spending— things that aren't allocated on an annual basis—things that are distributed by the terms of past legislation, and in that group we should include defense spending and the interest on the national debt. The ten committees try and agree on spending cuts in the relatively small discretionary areas. As I said, the overall goal was to get the FY1990 deficit down to one hundred billion. The so-called cuts required to do that depended on increased spending in various areas. To give you a rough idea, at one point in September, 1989 they had settled on the following numbers: 1. Agriculture = two year savings of $4.2 billion 2. Banking = $213 million 3. Education & Labor = $746 million 4. Energy & Commerce = $6.8 billion 5. Government operations = agreed to take post office off-budget 6. Interior = $701 million 7. Marine & Fisheries = $379 million 8. Post Office & Civil Service = $2.3 billion 9. Veterans Affairs = $1.4 billion 10. Ways & Means = $19.6 billion (changing tax code etc.) Q- Were they successful? A- Before the August recess in 1989, the House passed all thirteen appropriation bills but never met on conference with the Senate on most of them and many committees never got around to appointing conferees. The House had to pass a continuing resolution on September 27, 1989 to keep the government running until Oct 25th –one month. Q- And, as we said earlier, that was what most people saw on the TV screens during the nightly newscasts. I remember that many people urged President Bush to veto the CRs. What would have been the consequences if he had listened? A- The Gramm-Rudman legislation would have kicked in. Instead we had a dreadful display of irresponsibility. It reminded Congressman Fred Upton of the 1986 omnibus bill in which members of the House had one hour to look over that gigantic tax bill before voting—a bill that was to affect the lives of millions of citizens . The bill was brought into the House in a box used for Xerox paper with the papers held together by rubber bands and string—one pile for the Republicans and another for the Democrats. He remembers, and I do too, how House members came up and riffled through the pages to make certain their special pork was included and that was all the perusal the bill got. Not one person
could say he was familiar with everything that was in that bill, but that didn't stop them from voting for it so they could leave town. Q- What if the committees couldn't meet their goals and the process had to go to sequester? A- That would have meant dividing what turned out to be a $16.1 billion cut equally between defense and non-defense discretionary spending. In effect that would have meant a five percent cut in all proposed increases in non-defense discretionary spending (remember the previous years' spending heights are always guaranteed again by the continuing resolution) and because of the larger base of defense, a four percent cut in defense. Q- I understood defense was not due for any increases anyway. But what do you mean by nondefense discretionary? A-Also called domestic discretionary, the term refers to non-defense programs that require annual approval by Congress. The FY1990 budget contained almost two hundred billion worth of non-defense spending which legislation directs Congress to cut back until the FY1990 Gramm-Rudman targets are met; i.e. reduce by $8.5 billion. Entitlement programs such as Social Security, government pension payments and safety nets for the poor are not discretionary (do not require annual approval )and are exempted from cuts. That accounts for the relatively small portion of the more than $1.2 trillion budget which is left to the discretion of Congress. Because Congress failed to exercise its discretion in a timely fashion over the entire budget, much of that discretion was lost. Q- Wasn't there an April deadline for some budget submittal? I remember someone claiming the bipartisan agreement reached on April, 14 1989 didn’t represent a bold approach to deficit reduction? A- That was my Congressman. On that date the budget-elite on Capitol Hill staged a media event to congratulate themselves on their new bipartisan spirit of compromise. When asked to explain this spirit of compromise Leon Panetta, Chairman of the House Budget Committee replied, “We've accepted the President's numbers on revenue and they've moved towards the Congress on the spending side.” Oy veh! Rosy numbers in exchange for more spending. They called it compromise but as taxpayers, we'd been had! Q- What do you mean by the President's numbers? A- The administration's Office of Management and Budget (OMB) figures are generally more optimistic as to the rate of growth, interest, inflation and unemployment than are those of the Congressional Budget Office (CBO). So even though many members of Congress scoffed at the OMB numbers they were embraced either in a spirit of compromise or because they made the Gramm-Rudman (G-R) target of a hundred billion deficit in FY1990 easier to reach.
Q- What do you think? A- When you think about it, one is part of the other—compromising makes it easier. Not only that, the 1987 revision of the G-R legislation called for the use of OMB figures instead of CBOs, so the acceptance of their figures was hardly impressive. To hit that FY1990 G-R target, somewhere between twenty-five and thirty billion had to be negotiated in either spending cuts or new revenue or a combination of both. There were plenty of places to cut spending. For starters the negotiators could have looked at eight billion worth of subsidies for farmers whose gross incomes exceed a hundred thousand annually, or at the one billion in cost of living adjustments (COLAs) for retired veterans, civil service and military personnel and billions more in Medicare payments to those who can well afford their own health care. But then maybe they did look. The compromise did away with seventeen billion of George Bush's proposed reductions in spending dealing with COLAs for civil and military retirees and substituted $6.8 billion cuts in health, agriculture and postal reforms. The proposed reduction in Medicare administration was whittled down to $2.7 billion from $5.3 billion. So much for meaningful spending cuts. Q- I'm glad they reversed Bush's scheme to reduce pensions---especially for the military. The people who would have been affected had already agreed to trade lower cash compensation in the present for cola pensions in the future. I know enough about contract law to know one party can't change the terms after another party has performed based on the original terms. A- The administration's proposal to raise additional revenue via reduced capital gains rates was also given the cold shoulder. Touted as a tax cut for the rich by its opponents, it's strongest champion, the indomitable Richard Darman (Head of OMB) countered with his own one-liner, referring to the cuts only as incentives for investment and growth. As Jim Sasser, Chairman of the Senate Budget Committee put it, “A cut in capital gains has two chances of passing; slim and none”. Q- So what did they do? A- The negotiators preferred to get their revenue from the ol' bag of tricks. They pulled out more bookkeeping gimmicks such as moving eight hundred fifty million in agricultural subsidies into 1989 to dress up the 1990 ledger, cancelling five hundred million worth of lost or damaged food stamps, moving the Post Office off budget, selling government assets and … Q- I get the picture. I've heard those kinds of shenanigans referred to as smoke and mirrors.
A- All this even though revenue from the sale of government assets and short term savings that come from shifting outlays to the next fiscal year couldn't be used to reach the G-R target. Q- Why not? A- That's the way the Gramm-Rudman legislation was written. But these paper outlays were not shifted to the next fiscal year; they were shifted to the previous fiscal year! Q- But didn't that increase the FY1989 deficit? A- Sure, but that was ancient history. Number crunchers turned their full attention to manipulating the FY1990 deficit in order to meet the hundred billion mark, or a hundred and ten billion since the law allows a ten billion leeway. Q- I've heard a lot of people claim that our budget problem is due to our declining resources. Do you agree with that? A- It would depend on what is meant by resources. I would stipulate to declines in human resources due to declines in education, training, work ethics, integrity, morals and the increase in substance addictions. Any decline in physical resources, including a decline, in savings and even our infrastructure, can, I believe, be traced to the human resources decline. Q- To focus on just one area for a moment—why the decline in savings? A- Again, an entire book could be written on this one subject. Naturally there is less need to save as we move closer and closer to a welfare state. Keeping within the budget context however, the immense amount of borrowing that goes on in this country is against savings. A high deficit as a percentage of GNP is fine if savings are equally high, as they were until recently in Japan. Q- You know when I look at this budget process it seems that Congress has the first and the last word. Congress is the body that initiates the law-making process by passing legislation and also has the last word with its power to override any presidential veto. A- That's true. The presidential veto provides an opportunity for a second look and, in keeping with the spirit of checks and balances, was intended as a curb on hasty legislation. Congress was originally expected to provide lump-sum ceilings on expenditures and the executive branch was to determine how the funds would be spent. Q- That certainly has changed. A- But what most people don't realize is that even though recent budgets have passed the trillion dollar mark, half of that amount was committed long ago in the form of entitlements and interest on the debt, so its dispersal is pretty much automatic. Controversy surrounds only the smaller portion of discretionary spending.
From George Washington until Richard Nixon's last year in office, presidents had the power to impound. The president's power to impound monies was the only way, aside from a presidential veto, that the executive branch could check the otherwise unbridled spending power of the legislative branch. In 1974 Congress reformed the budget process and destroyed the impoundment power of the executive. Q- What does impound mean? A- The refusal to spend appropriations. Although the president has consistently and emphatically been denied the line item veto, there are still two means Congress created for the executive to make narrow changes in the budget. Those are rescission and deferral. The trouble is each rescission vanishes just like Cinderella's coach, unless Congress approves it within forty-five days. Q- Hold it! Hold it! What is a rescission? A- A rescission is an annulment or cancellation. In two budgets Ronald Reagan included three hundred twenty-seven rescissions equal to $12.6 billion in potential spending. Q- What happened? A- Most were simply ignored by Congress. Q- And deferral? A-President Reagan was sued after requesting that two hundred fifty-one million for urban development grants be deferred in 1986. The House appropriations committee had already voted to kill his deferral authority. What was known as the federal spending control initiative and nick named the pork buster, was introduced into Congress on September 17, 1985 by Senator Dan Quayle. Q- Obviously a technique to get the pork out of government budgets. A- Obviously. It permits a rescission of spending authority to be enacted if the President and both Houses of Congress agree. The legislation would guarantee Congressional action on executive proposals to reduce or eliminate line-items in specific appropriation measures. It eliminates the ruinous forty-five day automatic lapse used by Congress to avoid reviewing and taking a stand on presidential rescission proposals. Congress had been trying to weaken the president's authority over budgeted spending for years and years and it succeeded in doing just that with the passage of the Impoundment and Budget Control Act of 1974. Q- That was when President Nixon was stuck in the mire of Watergate.
A-The legislation was ostensibly to bring expenditures into line with revenue. It established the current budget process by creating the budget committees, the Congressional Budget Office, budget resolutions and the reconciliation process. The Act called for Congress to pass each year thirteen different appropriation bills by specific deadlines. Q- What happens when Congress fails to meet those deadlines? A- There is no penalty for individual members, but the whole country suffers as continuing resolutions and gigantic omnibus bills are hastily passed. When a president receives an appropriation bill loaded with pork, his alternatives are to veto the entire bill—condemning the good along with the bad—or bite his tongue and sign. The executive's party will not let him take that chance. So rather than vetoing the so-called Bomb of '86 (Bloated Omnibus Money Bill), Ronald Reagan on November 17, 1986, tacked the following statement onto his signature ratifying H.R. 5363: “Although I am signing this bill, I am very troubled by the inclusion of an unrelated, last-minute amendment to the Bankruptcy Code. The Congress' decision to link such provisions to otherwise desirable and useful legislation is but one example of the highly objectionable practice of combining unrelated legislation in a single bill. This practice, at a minimum, violates the spirit of the Constitution by restricting the President's veto power.” Ronald Reagan put his foot down in 1988 and Congress met the appropriation deadlines without resorting to sordid continuing resolutions. Q- I understand that Ronald Reagan talked a good game but never used the muscle he had as the Executive to back up his rhetoric. A- It's true he used the veto less than any president, at least in recent history. Q- George Bush doesn't have that problem. In his first sixteen months President Bush vetoed eleven bills. A- I would just like to add here that surprisingly, liberal Senators Paul Simon of Illinois and Howell Heflin of Alabama support a line-item veto for the president. Even Senators Kennedy and Biden offered their own statutory (as opposed to constitutional) version, known as enhanced rescission. The enhanced rescission received forty votes after being introduced by Senator Dan Coats in 1989. Q- I bet Senator Robert Byrd of West Virginia abhors the item-veto. It would curb his porkbarrel power as chairman of appropriations. A- In 1988 Senate Minority Leader, Bob Dole wrote a letter to the Wall Street Journal saying how at the beginning of every Congress since 1977 he had introduced a bill giving the president the line-item veto, to no avail. In 1988 he decided to go along with those constitutional scholars
who have been urging presidents to act as if they have line item vetoing power and force the Congress to test the constitutionality of the action in court. There is reason to believe that when writing the Constitution, Madison was aware that Congress might try to escape a presidential veto by the use of omnibus legislation, as they are doing today, and he provided a remedy in Article I, Section 7, Clause 3. There the President is given the power to veto orders, resolutions and votes which have already been approved by both the House and Senate. No president has ever used the veto power except on bills. Q- And some people think it would be a stupid stunt to pull. It would be an open battle for power between two branches of government. A- Many people say the 1974 Impoundment and Budget Control Act was a power play between Congress and the executive. Congress was the clear victor when that legislation passed without a whimper from the mortally wounded Richard Nixon. Q- Congress may have been the victor, but the American people were losers. Our debt has been spiraling out of control ever since. Although cause and effect are not clear it seems plausible that there is more than a coincidence here. A- Well we know even though he was constantly urged to do so, Ronald Reagan never launched a test case and although George Bush has seemed ready for the challenge on several occasions he still hasn't made a move. Q- There will probably never be a better time for a test case as far as the executive branch is concerned. A- I suppose you're referring to the conservative leanings of the current High Court. While we were talking I found the letter I referred to earlier. Listen to what Senator Dole said in January, 1988: We have a budget disaster on our hands. From 1980 to 1988 the federal debt has grown from $908.5 billion to $2.6 trillion. Americans now realize that time is of the essence in solving the budget mess… The spectacle of the president having to veto hundreds of pages of good legislation to eliminate a few unwise provisions is an exercise in poor government and, if the Constitution is to be believed, totally unnecessary…let the courts help blow the whistle on the Congressional pork-barrel game. Q- That's incredible! He was talking about a disaster when the debt rose a little over one and a half trillion over eight years and four years later we've added another one and a half trillion. A- $2.6 trillion to a debt ceiling currently of $4.1 trillion looks like we're accelerating the debt spiral at double the previous rate.
Q- We're spinning out of control twice as fast as when one of our most powerful senators called the debt a disaster. I see why you're so frustrated—no one's listening—no one seems to be out there. A- This should make them sit up and take notice: Debt grows at six thousand per second! Q- Ouch! How can we, just ordinary citizens without DC credentials, reach people with this information. A- Tell a friend and ask him to repeat it and maybe we can do something about this mess before it's too late. Q-There was a lot of talk about cuts in Medicare at the end of 1990. A-Talk with no substance. The budget compromise bill passed the end of 1990 for FY 1991 provided mammography screening for 18.7 million women on Medicare (additional estimated five-year cost of $1.25 billion) regulated Medigap insurance polices (adds federal penalties up to $25,000) and prices Medicaid pays for prescription drugs (hurt drug companies by supposed to save government $1.9 billion over five years), provided more home-care service for low-income frail and elderly (authorizes $580 million for the program over five years) and expanded help for low-income people in general, all to the tune of $22 billion (supposedly over 5 years) Q- I heard that the Bush administration cut Medicare funding in that budget. Is that true? A- Most of the dollars allocated to Health and Human Services is mandatory spending—all Darman was trying to do with Medicare was restrain the rate of growth. Just memorize the phrase decrease in the increase because that's as close as Congress gets to a cut. Anyway you look at it, it's an increase as you and I know it. Q-Weren't the premiums and co-payments raised for Medicare recipients? A-There was a proposal in the FY1991 budget that persons with incomes above one hundred twenty-five thousand a year pay seventy-five percent of the true cost of their Medicare insurance premiums ($63.60 per month) instead of only twenty-five percent of the cost ($31.80) as is now the case. But nothing ever came of it. Q- That's news to me! I never knew government was picking up the tab for seventy-five percent of the real cost of Medicare premiums. That was supposed to be a voluntary self-sufficient program, not a welfare subsidy. There are many elderly people who don't begin to need the financial help as much as their grand-children do in trying to afford an education, a home or even a family. A- Why the premiums should be subsidized at all is beyond me. We're not talking about return of monies paid into the Social Security system as in payroll taxes you understand. In the early
eighties Ronald Reagan suggested that those choosing to participate in the Medicare program raise their premium payment slightly from twenty-five percent of the real cost, to cover thirtyfive percent of the real cost, and lobbyists for the elderly had him running for cover. Q- Besides, states are now required to pick up one hundred percent of the cost of premiums and co-payments and deductibles for Medicare beneficiaries below the poverty line. The system is already targeted to protect the poor. A- That only began in 1991. By 1995 states will have to pick up premiums for those living on up to one hundred twenty percent of the poverty-line income. This is a perfect example of how mandates from Washington play havoc with state and local budgets. That one little do-as-I-say is expected to cost states three hundred eighty-seven million over five years. Q- I understand that same legislation increased the Earned Income Tax Credit. A-That's right. Six billion dollars was to be paid to ten million low-income families. The idea is to help working families with meager incomes. The 1990 maximum benefit to a family was $953, that can reach $1,583 in 1991 and is set to rise to $2,000 by 1994. The five year cost here is supposed to be $13.1 billion with a huge increase anticipated after 1994. Low-income working families with children will also get tax credit of six percent of eligible earnings or a maximum of $426 in 1991 in order to purchase health insurance for their children. The anticipated five year cost is $5.2 billion. Q-How could spending increases end up in a bill aimed at cutting spending? A-According to California Congressman Henry Waxman it was due to pent-up frustration. Ohio Congressman Willis Gradison said they knew Republicans would never support the budget agreement no matter what the Democrats did, so they added even more liberal provisions to attract the maximum number of votes from their own party. Q-Were any special provisions made for children in the FY 1991 budget? A- Medicaid for children was expanded to include coverage to all children up to age six who live in families with incomes up to one hundred thirty-three percent of the poverty line. Q- How do you determine the poverty line? A- Poverty thresholds were first established in 1961 when the Social Security Administration, along with the Department of Agriculture determined the income necessary to feed adequately (a subjective term to say the least) the number of children and adults in any given household and arbitrarily multiplied by three. Q- You're kidding—right?
A- I know what you're going through. We all want to believe that they really know what they're doing out there. That the hundreds of formulas which permeate all of our lives are based on truth and not doodles on some bureaucrats' desk. Q- Welcome to the real world, huh? So do you happen to know, based on this not so omniscient formula, the maximum number of dollars a family of three could make and still qualify for Medicaid for their child? A- The poverty line in 1991 for a family of three is just under ten thousand dollars so a hundred thirty-three percent would allow incomes of roughly thirteen thousand one hundred forty-seven dollars. By 1995 seven hundred thousand more children should be added to the program and by the year 2002 states will have to cover kids six through eighteen which will add a lot more kids. This is all supposed to cost $1.1 billion over five years. Q-Sure it is! They really know how to predict things like that in Washington, D.C. Remember the line they used in order to talk recalcitrant voters into supporting Medicare? It would only cost eight billion in 1983. A- And the actual cost in 1983 was $38.2 billion; slightly short of the prediction. I was the one who told you that! Q- This is another instance of federal legislators telling state legislators how they must run their social programs, what they must spend on whom and then leaving them to locate the resources to comply. This represents a mammoth expense for state and local governments, especially now that state and local governments no longer have the surpluses they once did. A- That's an understatement. California wrestled with a fourteen billion deficit in the summer of 1991, and it's easy to see why. Aside from attention getting propositions like proposition 13, which limits the state's ability to raise revenue, and proposition 98 which restricts the use of revenue by requiring forty percent be appropriated for education, let's look at a very modest proposition as symptomatic of the problem. Proposition 117 authorized thirty million a year for thirty years; tax dollars that can be used to purchase habitats for deer, lions, and numerous endangered species. A good cause, right? Q-At least a majority of California voters favored it. A- The point is, there is no end to good causes. Q- Thirty million dollars a year is a mere drop in the bucket if you're talking government budget problems. If you want to highlight problems, look to the pension systems. More than six thousand state and local retirement programs cover about twelve million public employees.
The unfunded liability of state pension debt has been estimated at more than one thousand for every American adult. New York City has a liability exceeding three billion; Boston’s liability comes close with every citizen in those cities liable for almost two thousand in pension promises. A- In the mid eighties a community outside Detroit with a population of about thirty thousand was channeling ninety-nine percent of the city-property-tax revenue into the retirement funds of the police and fire fighters. Time magazine reported that one city employee had only contributed thirty-five dollars to his retirement plan but was able to collect two hundred fifty thousand in benefits after retiring. A-The trouble with politicians acting as agents on behalf of taxpayers is that they are not using their own money. They acquiesce to terms where public employees are allowed to keep their jobs indefinitely without threat of dismissal and collect close to full salary, indexed to cost of living, when they retire with the cost to be born by citizens in the future. Most private sector pensions are not fully indexed to the cost of living as are public plans. There are real accountability and generational equity questions here. Q- What about federal pensions? A- The civil service pension system provides benefits which in the private sector would only be reserved for top executives. In 1984 the Congressional Budget Office (CBO) estimated that $5.2 billion in outlays could be saved over the next five years (1984-1989) by slowing the rate at which benefits accrue, reducing the COLA escalator (cost of living increases) and adding penalties for non-disability retirement prior to age sixty-two. But no one was listening. Every year the Treasury must supplement the pension contributions made by federal employees and the agencies for which they work because in order to achieve such generous retirement benefits the contributions would otherwise be too onerous. These supplements are estimated to cost close to thirty billion this year. The Office of Personnel Management (OPM) estimates that the government's total liability to current and future retirees totals five hundred fourteen billion and is rising at the rate of a hundred million a day, not counting the military retirement system, which could mean a rise in pension costs of one trillion over the next thirty years. According to the same CBO report, big savings could also have been achieved by making changes in the military retirement system. It was estimated that between 1984-1989 $2.6 billion could have been saved by making employees who retire after twenty years of service wait until they reach age sixty-two before granting full benefits. It was also suggested that military retirees, still of working age, be given only half the normal COLA. In addition to the twenty-four billion that could be cut from pensions, $12.4 billion more could be saved over five years by shrinking the bureaucracy and bringing it more into line with private sector employees.
For instance, comparable private sector employees get an average annual vacation of nine days as opposed to the thirteen days allotted government employees. Little wonder between 1946 and 1984 the number of government employees increased from 1.5 million to 2.1 million. American workers recognize a deal when they see it. Q- I heard that some former members of Congress have pensions in the hundred thousand range? Could this be true? A- I know former Senator Mike Mansfield of Montana is the most famous with a pension of more than one hundred fifty thousand a year. Former House Speaker, Carl Albert of Oklahoma tops one hundred thousand and former Senator Al Gore, Sr. is mighty close to it. Former President Nixon receives thirty-eight thousand six hundred and fifty dollars a year from his Congressional pension in addition to the one hundred thirty-eight thousand nine hundred presidential pension. Q- How could Mike Mansfield receive so much? A- Senator Mansfield has an ambassador's pension also. What really amazes me is that crooks can receive pensions. Q- You mean Richard Nixon? A- No, I mean two Congressmen that were actually convicted of extortion. Senator Harrison Williams gets fifty three thousand seven hundred and sixty-five dollars a year even though he was convicted in connection with ABSCAM, and Congressman Mario Biaggi will receive more than forty thousand even while he is serving a prison sentence. Apparently Congressional pensions can only be withheld if someone is convicted of treason. Q- What is the annual cost for all Congressional pensions and what is the average annuity? A-The Congressional pension tab has been running about thirteen million a year with an average payout of between thirty-five and forty thousand. The National Taxpayers Union figured that the 1991 pay hike of 28.6 percent is expected to add an additional four hundred twenty-four thousand in lifetime pension benefits to a typical House member elected before 1985 and an initial annuity of forty-nine thousand one hundred twenty-five dollars after the current term. Members of Congress get back in just their very first year of retirement just about everything they contributed to their pension fund over their active years. Q- It pays to make your own rules. Public-school teachers don't come under the federal pension system but they are nationwide and their pension liability is increasing on a fast track. In 1988 those unfunded pension costs topped four hundred billion. A- Promises have been made far in excess of assets, which means we are simply deferring the costs to future generations. To begin paying the full costs of government we would have to
assess every man, woman and child at least ten thousand in new taxes immediately or begin to cut back on the public-sector work force. I think the assessment for an individual’s share of all government debt is more like twenty thousand, but I don't even bother to add up the numbers the way I used to after I heard such vastly different claims. No matter what the real number might be I know it wouldn’t faze you. We just don’t know how to handle all these large numbers. Somehow the problem has to be brought home to ordinary people in a meaningful way. Q- Ronald Reagan ran dollar bills from earth to the moon and back. I've heard of advocates who make their point by referring to the number of toilet flushes or the number of times it takes to say uh, uh, uh, beginning at the time of Christ. A- The point is, none of the illustrations have done any good—debt keeps marching on. On second thought, make that sprinting on. The headlines in our local paper in early 1991 read “County May Face Ten Million Shortfall” and a few days later another headline proclaimed “Cultural grants in county to total $112,000”. According to the first article, things were so tough the powers-that-be were considering new business license fees and a utility users' tax. Who uses utilities? Everybody—that’s who. As for the second article, the Monterey County Board of Supervisors gave the grants to thirty-three groups which included symphony, opera, choral music and poetry readings. Who primarily uses these programs? Q-It looks like if you're in the first group you're assessed more taxes and if you're in the second you benefit from grants. A- Fifty-six of the richest communities in the nation, including Palm Springs, Newport Beach and Palo Alto, California receive Community Development Block Grants (CBDGs) from Congress despite Jack Kemp's attempt to stop the flow of this HUD money which could be put to be use elsewhere, in his opinion. Q- How much does each community get? A- It varies, but for the ones mentioned above it’s somewhere in the three hundred thousand to five hundred thousand range. Q- Whatever it is, it leaves less for the depressed inner city areas. We need programs that target funds better than the CBDGs. A- Mr. Rostenkowski, one of the most powerful men in Congress with over thirty-five years in the House and ten years as Chairman of the powerful Ways & Means Committee, frequently addresses the National Press Club in Washington, D.C.
In 1985 he urged members of the press to cover tax reform, and in 1987 he wanted coverage of trade. The resulting press coverage resulted in massive reform bills. He freely admitted in July, 1990 that he was trying to get the press to publicize his own favorite deficit reduction proposal. He chided the press about their failure to cover the budget because most of them thought people would find it too boring. Q- Don't take this personally, but the press does have a point. B-o-r-i-n-g! A- Well he did get some coverage from the Washington Post and CBS and gave them credit for launching his deficit reduction plan in the media. He told the press they have a major role in promoting and making things happen in today's society. He asked them to use their clout to help get out his message. He may have been a shade too dramatic as he intoned “The stakes are high; the U.S. position in the world and living standards are at risk”. Q-I heard Mr. Rostenkowski address the National Press Club earlier on February 9, 1989. His theme that day was economic vs. social responsibility. A-That's right, I almost forgot that appearance. He said there is a pent up demand for social spending on child care, public works, health, farmers, welfare and education and that for the first time in our history the next generation would face a lower standard of living. He milked the standard phrases about homelessness, child poverty and inadequate health care. Q-It sounded like he was chairman of something like Health and Human Services—what is the Ways and Means Committee? A-The House Ways & Means Committee has jurisdiction over all tax legislation, Social Security and other entitlements. Well, anyway Dan Rostenkowski carried on about us being a debtor nation at the mercy of foreigners. He claimed it would be a mistake to play chicken with the Gramm-Rudman targets because Budget Director Darman just might choose sequester. He agreed with Congressman Panetta, chairman of the Budget Committee, that all spending and all revenue must be on the table and that both must be part of effective deficit reduction. As for taxes he pointed out that Ronald Reagan raised more taxes than any other peace time president. Six tax hikes took affect during his second term. He also ridiculed Ronald Reagan's numbers for FY1990: 3.2 percent real growth, 3.8 percent inflation, 6.3 percent short term interest rates. Surprisingly he credited or criticized, depending on your point of view, President Reagan's increase in Medicare spending to the tune of ten billion a year, declaring it to be the largest increase in Medicare since 1965. Q-Well you've got to admit the administration numbers were off.
A-You should know by now that no one predicts accurately—predictions are almost like a lottery. But getting back to Mr. Rostenkowski; he was asked why he didn't favor taxing the rich to fund the needed social programs and he replied with a recommendation for a rise in the highest marginal rates from twenty-eight to thirty-nine percent. Q- How about a gasoline tax? Sin tax? Mortgage deductions? Tax fringe benefits? A- He thought a gas hike of ten or fifteen cents a gallon would provide an incentive to buy smaller more efficient cars. Q- That means Japanese. I guess he doesn't represent Detroit. A- He represents Chicago. He said he wouldn't propose a sin tax but he would vote for one. He reminded everyone that 1952 was the last time the tax on beer and wine was raised. As for mortgage deductions, he would like to limit them to a million dollars. Q- Didn’t Representative Rostenkowski make an appearance before the National Press Club in the summer of 1990? A- Yes, in July. While he was there he pledged not to move on taxes until President Bush made the first move and added that “Those who say tax increases are unnecessary are the economic equivalent of the flat earth society. They may be as entertaining as Groucho Marx, but they're as irrelevant as Karl Marx. They are simply wrong.” He referred to a Rostenkowski Package for Budget Reform which included sixty percent reductions from spending cuts (defense and entitlements) and savings on interest expense and forty percent from revenue increases (tax increases on gasoline, tobacco, beer, wine and getting rid of the income tax bubble). In 1990 he claimed the gasoline tax wouldn't hurt the poor and middle class much. Q-That's ridiculous since most of those things are commonly used by lower-income people and any increase in price from a tax or whatever, would comprise a larger percent of their budget. A-Well he didn't want to pay attention to common sense so he had a survey commissioned which showed it would cost the poorer segments of the population only sixty dollars more a year. He claimed his plan would allow the Fed to reduce interest rates and would get us on a pay-as-yougo schedule. Q-Everyone makes that promise, but it is never kept. A- That may be true, but constituents remember the promises and often direct their criticism elsewhere. Mr. Rostenkowski claimed that business leaders and young kids are supporting his plan and have organized in various schools as Students for Deficit Reduction. Q-No kidding. That’s great although this is the first I heard of it. I thought his mission was to dump on the Reagan Administration.
A- Not really. His mission was to get people worked up about the national debt. He spoke of the nation's debt increasing at a rate of twenty-one million dollars an hour which he broke down further to three hundred forty-seven dollars per minute and added that although talk may be cheap, inaction is costly. Q- If he was speaking a couple years ago then you weren't exaggerating at all when you said debt is now increasing at six thousand every second—in fact according to Citizens Against Government Waste and various taxpayers organizations, your estimate is a little low! A- You thought I was exaggerating? Thanks for the vote of confidence. Anyway, back to Mr. Rostenkowski. He was pretty good. He was talking facetiously about how in the '80s it was pleasant to live beyond our means even though it increased our dependence on high-interest foreign money. He did criticized Ronald Reagan's statement that the “deficit is big enough to take care of itself” and expressed regret that as a society we had been willing during the Reagan years, to impose a substantial amount of pain on relatively small groups, accepting that as the price to be paid for avoiding the need for higher revenue. Q- I’d call that dumping. A- Okay. I guess you’re right. He gave the same old rhetoric about leaving the burden for future generations and said that repaying our debt will hurt their standard of living and taunted the ridiculous economists who insist deficits don't matter. He was correct in pointing out that deficits do matter in two very important areas: first they affect the cost of capital and therefore our competitiveness and secondly they cripple government's ability to respond to pressing social needs. He reminded members of the press, who assuredly needed no reminding, that during the '80s the philosophy was get government off people's back. As for being facetious he said self-reliance meant we shouldn't worry about public education because the rich could afford good private schools for their children. We shouldn't worry about clean air because the rich could escape to the mountains. We shouldn't worry about run away health costs because the rich could afford comprehensive health plans. Meanwhile we have tax subsidies totaling thirty-seven billion annually for health insurance and thirty-seven million Americans have no insurance. Is this right? Is this fair? He found it shameful and unacceptable, adding “If all Americans aren't well educated, well fed and in good health our entire society will ultimately pay. American industry won't be competitive and our standard of living will suffer. Workers of tomorrow won't be able to support retirees.” Q- What about funding for the war on drugs? A- Someone brought up a proposal to have kids buy bonds for the war-on-drugs, in much the same way as kids in the forties purchased war-bonds. That's when he launched into the richest
nation on earth rhetoric and yet we can't afford the war on drugs. They way he saw it we’d = do anything to stop drugs except raise the dollars needed. Instead we are borrowing from our kids. He went on in patronizing terms and as he warmed to the subject he asked “Should we sell infrastructure bonds to teenagers getting their first drivers license? After all, pot holes are their problem too! Should we sell clean air bonds to young mothers airing their babies in the park?” Q- It sounds like he was in good form. A- He's a great down-to-earth speaker with some terrific lines. Unhappily it doesn't seem to bother him to tighten other people's belts. Q- You mean he could take some lessons from Davey Crockett. A- Exactly! He's looking at a campaign war chest worth over a million dollars which he could spend as he likes if he were to retire in 1992. In the meantime he asserted that we should all pay to finance our national priorities—everyone should participate in a program of shared sacrifice. Q-I seem to remember he was in trouble with senior citizens not long before this. A-That was over the catastrophic health care legislation, but on this occasion he seemed to be trying to patronize them. He said, “I can't believe the senior citizens are any less patriotic than anybody else in our society and that they won't make the sacrifice.” He added that the various senior organizations he had talked to were planning to come up with sacrifices other than freezing colas. Q-Did he mention anything about possible sequester? A-Definitely! He claimed that sequestration would be disastrous. He reminded the audience of the nineteen billion sequestered in 1987, the four billion in 1989 which lasted only four months but he predicted that in the fall of 1990 everyone should get ready for a sequester in the hubdred billion range. He figured sixty billion plus additional borrowing to fund the Resolution Trust Corporation. He used some of the same scare tactics that were used in California by opponents of Proposition 13—that all necessary services would be cut—instead of prioritizing. Q- Like what for instance? A- He said a sequester could put air traffic controllers on a four-day week, reduce the number of IRS audits by two thousand, lay off nineteen hundred FBI agents & reduce by sixty percent or two billion the spending on anti-drug activity, reduce drug treatments for and the number of inmate's able to be cared for in prisons. He added that we could forget about cleaning up any toxic dump sites and thanked G-d the safety-net was in place to protect the very poor and elderly.
Remember, a sequester would have meant an eight-seven billion cut in a $1.2 trillion budget— less than seven percent.. Q- They've managed to triple spending in ten years—don’t tell me they couldn't shave off seven percent. It's hard to match the energy and vitality of a Dan Rostenkowski but didn't California Congressman Pete Stark have his own plan to reduce the budget deficit? A- Lots of plans have been floated. Pete Stark's, as I recall was rather complicated and long but I'll lay it out for you in abbreviated form the best I can: 1) Cut military spending by twenty-five percent or about seventy-five billion a) Cancel B-2 bomber & no new weapon starts for a year b) Reduce a number of carrier task forces & mothball all WWII battleships; they're easy targets c) Full burden-sharing in Korea, Japan and Europe or remove most troops d) Reduce foreign bases—would save one billion a year to give up Philippines bases where fifteen thousand military and twenty thousand civilian dependents and employees are stationed e) Cut all but theoretical research on Reagan’s SDI, Strategic Defense Initiative. It's costing thirty-two billion for research alone and is due to cost a hundred thirty-two billion over the next ten years. The Senate already voted fifty-four to forty-four to slow the time for deployment of SDI f) Shut-down the land-based missile part of our defense triad and rely on sea-based deterrents and on an air-borne force. g) Terminate all military public relations units h) Consolidate all intelligence agencies and procurement staffs i) Cut eighteen billion from foreign aid j) Cut four billion from NASA's budget k) Stop Bureau of Reclamation construction = six hundred million l) Limit farm subsidies to only the smallest farmers to save nine billion m)Freeze inflation adjustments for most doctors under Medicare n) Adopt nationwide the method NY state uses to control prescription drugs
o) Discontinue Voice of America p) Impose taxes on carbon emissions = six billion in annual revenue Tax twenty-eight dollars per ton of carbon content of coal, oil and gas = $22.2 billion in 1991 revenue. Stark says it would encourage energy conservation and the development of renewable fuels, and stabilize carbon dioxide emissions by the end of the century ) Treat water-irrigation subsidies as taxable income S) Tax the cutting of redwood trees T) Increase tax on gas guzzlers U) Deny tax deductions for cigarette ads V) Impose a permanent thirty-three percent rate on incomes above one hundred twenty-five thousand and a surtax on millionaires to reap an estimated five billion new revenue W) Tighten rules on capital gains at death to raise another five billion X) Raise corporate tax rate from thirty-two to forty percent to gain twenty-two billion in revenue Y) Reduce tax deductions for business meals & entertainment from eighty to fifty percent for a gain of $3.5 billion. Z) Increase the number of IRS auditors and have them concentrate on the low tax rates paid by foreign companies. Q- I see a lesson here. When we accept small cuts in deductions without a whimper, the politicians are encouraged to go ahead and take a little more. A- It’s not just government. The Worldwatch Institute also presented some pretty hefty plans for military savings. Their plan wasn’t to reduce the deficit and thereby save interest on the national debt. Worldwatch didn't mind the deficit and its huge interest expense as long as the borrowing could be used for civilian products, to refashion production equipment at arms plants and find new uses for military bases and personnel, and to retrain employees. Incidentally, the government accounting office is one of the few cost effective agencies in D.C. Just in 1990 it identified $15.2 billion worth of waste, fraud and abuse. Q- It has to be a huge operation. A- GAO costs over three hundred fifty million and has five thousand six hundred twenty employees with all but eight hundred dedicated only to investigations and audits. Their reports
become part of the public's data base. Employees are loaned out to the Congressional Budget Office and Joint. Tax Committee and at the request of any committee chairman. Because for over thirty years all the chairman in the House have been Democrats, it has been suggested that the GAO has become partisan. In the summer of 1991 Congressman Dingell claimed the GAO was saving the taxpayers $14.5 billion and was incensed that the Republicans should challenge its integrity. Q- Have you ever heard of The Culture of Spending? It came out recently. The author is Jim Payne. He claims that since the beginning of our government the executive has been required to report administrative actions, implementation of laws and national problems to Congress. Of course the number of reports grew over the years. In 1963 six hundred reports were required; in 1980 that number had risen to fourteen hundred. We're talking about reports required on a repeat basis—annually, quarterly, etc. In a typical year five to fifteen hundred specific one time reports are also produced. This led to the passage of the Congressional Reports Elimination Act of 1980 and the Congressional Reports Elimination Act of 1982 and guess what? A- Even more reports! Q- You know your bureaucrats. In 1985 2,800 reports were filed. So—what to do? A- Pass another Act. Q- Right on! They did in 1986 and as a result by 1990 Congress was requiring three thousand recurring reports a year at an estimated cost of three hundred fifty million. And then something you won't guess. A-They found some members of Congress couldn't read? Q- I'll ignore that. In attempting to eliminate some, they began choosing among them and reading them for the first time. A- And guess what? Q- Stop it! They discovered these reports had value. Now they're requesting more than can possibly be read, and as Mr. Payne says, “Congressmen have proven they are way out of their depth, but haven't the sense to move to shallower water.” A- And so what else is new? Q- You know those scandals at HUD—the Department of Housing and Urban Development— reports were submitted as early as 1981 which told of over-charging, fraud and unsound loans and detailed ways to prevent the documented abuses. There were thousands of other reports to read so Congress didn't pay any attention.
Newspapers led the way with the reported scandal eight years later. One Senator said, “When you're working with a trillion-dollar budget, with a hundred different agencies and cabinets, you can't overview each of these agencies.” A- That is my point exactly! What better argument can be made for less government? That was what was wrong with Michael Dukakis—his penchant for micromanaging. It wasn't the Willie Horton ads that did him in; it was his efficient conscientious accountant approach to government. We, the American people, know better. Senator Rockefeller is going to take a few more years to get all the details correct so he can present a master-plan for managing the country when he tries for the presidency a few years down the road. Q- The road to the White House? A- He thanks you for the thought. I just don’t think one person can successfully manage the affairs of two hundred fifty-three million people. It’s plain the members of Congress, can five hundred and thirty-five people, can’t successfully manage the affairs of two hundred fifty-three million people? Q- I totally agree. Before I interrupted with Mr. Payne's book you were talking about the GAO. A- Well I was just going to mention that the GAO has the power to audit the Pentagon but not the CIA. In the Pentagon it found potential savings of $2.9 billion in military intelligence, $1.3 billion in overspending by the Air Force, $1.2 billion in the Navy and $582 million of potential waste in the Army. Q- So much was made of the four hundred dollar hammers and six hundred dollar toilet seats that nobody outside of government thinks public employees are competent. Although anyone who thinks about it knows it can't be true in every instance, still the image must be terrible for the morale of government workers. A- I heard about an Air Force base that paid two thousand each for certain missile parts that a few months earlier cost only six hundred seventy-seven dollars.. The disparity was due to the cost to the contractor of restarting the assembly line. If the government workers had checked their excess-parts inventory before ordering, they would have found a thirty-two-year supply of the required parts, provided free-of-charge when the contractor originally shut down its assembly line. Q- I suppose we could exchange horror stories forever but my pet peeve is Amtrak. People who cannot even afford to ride Amtrak subsidize it through their taxes. Those who can afford the price of a subsidized ticket and who make the greatest use of the service have incomes far above the average taxpayer. As far as I'm concerned, Amtrak is in competition with private airline and bus-travel alternatives. It therefore seems stupid to subsidize its high cost when it serves a very narrow segment of the
population, albeit a wide segment of Congress. Amtrak's revenues barely cover its daily operating costs, let alone provide funds for maintenance. A- In examining federal budgets I see that taxpayers have subsidized Amtrak to the tune of about eight hundred million a year. Between 1972 and 1987 sixteen billion in taxes went into it although it is promoted as self-sufficient. Congress even gave it an interest-free ninety-nine-year renewable loan which, if counted, could make the losses twice as large. Q- Three times a week the Cardinal, runs between D.C. and Chicago with half its seats empty. Since it goes through West Virginia, Senator Robert Byrd has seen that the service has not been cut even though the route fails to meet the minimum ridership requirements Congress itself mandated. A- My ears perk up whenever I hear Senator Byrd's name mentioned. He was first elected to the senate in 1959 and after thirty-two years he has garnered power in the rules committee and is chairman of the very powerful appropriations committee. His seniority and age make him immune to criticism. He openly uses his power to enrich his West Virginia constituents. In the spring of 1991, however, he trampled on too many bodies in an underhanded attempt to move a CIA complex from Washington D.C. to a site in West Virginia. The move would require at least five thousand clerical type workers to commute about three hours a day or pick up and move. The majority of these workers had working spouses and so these jobs would also be affected. The top level jobs, about one thousand, were to be left in D.C. So once again, those who least could afford the inconvenience are the ones to suffer while the more powerful have their interests attended to by their colleagues on the power hierarchy. When are people going to wake up and identify their true political friends and enemies? Q- Senator Byrd is definitely a friend to his own constituents and since he has been in the Senate for thirty-two years and always brought home the bacon his constituents recognize and reward his efforts. A-Yes, and if they don't they should read some of the documentation put together by investigative reporter and author Donald Lambro. Mr. Lambro claims Senator Byrd has personally delivered one billion worth of pork to West Virginia—he refers to a monument of pork. So called pork-barreling among House members who represent narrow districts, is not uncommon. Bud Shuster, serving his tenth term, uses his position on the Public Works and Transportation Committee to bring the pork home to Altoona, Pennsylvania. He slipped thirteen demonstration projects for his folks into the 1991 highway bill, which if passed, would have cost tax payers across the nation two hundred eighty-seven million dollars. Q- You mean two hundred eighty-seven million dollars is the cost of the highway bill or Altoona's pork?
A- The highway bill would cost more than one hundred fifty billion spread over five years. Q- Then Congressman Shuster tried to funnel pork worth two hundred eighty-seven million dollars to Altoona, Pennsylvania. That should get votes. A- I believe the nation overall needs someone looking out for its good besides the President. Ideally that would be the role of the Senate. In my opinion, they should be able to exchange the accepted provincial short-range thinking of Congressmen and Congresswomen for the long range more encompassing points of view that the entire country so desperately needs. Q- Just in passing, I'd like to get into that highway bill a little more. I understand it didn't pass in the House where they were trying to desperately push it through just before their August recess in 1991. A- The additional five cents a gallon gasoline tax was its downfall, but I expect it to be amended and revived in the fall of 1991 because everyone is worried about the deterioration of the nation's infrastructure. Q- I guess it's evident that our highways, bridges and tunnels need repair and that because of the heavy congestion in some areas new ones need to be built. A- If our infrastructure isn't repaired it is estimated to cost America fifty billion a year in lost productivity. Arguments for the tax brought out the fact that sixty percent of the miles in this country need repair and many roads are congested. Germany and Japan invest twice what we do in transportation and have two and a half times our productivity rate. Japan recently committed $3.2 trillion for infrastructure, including four or five airports, and tunnels connecting the islands. The average gasoline tax, including state and federal, is 30 cents in USA and $2.48 in Europe. Q- Wasn't the five cents a gallon gasoline tax suppose to bring in $6.6 billion a year? A- Bring in and then what? That was the question the driving public was asked when last year's Nickel for America was used to mask the deficit, not to rebuild the infrastructure. This time one hundred percent of the nickels must go directly and immediately to transportation or the people will rebel. The same old argument was heard on the floor "The question is not whether we can afford to do this, but whether we can afford not to do this." But there was general agreement that the best plan would be to get thirty-three billion each year and spend it immediately with no trust fund involved. Q- Wouldn't the money needed to fund the highway bill break the budget agreement made in the fall of 1990?
A- That depends. The transportation sub-committee appropriations mandate that a nickel be considered as discretionary money and as such would raise the budget cap is questionable at best. Q- Even if the bill passed the House wouldn't the Senate need to pass the legislation also and then have the President sign it? A- Actually earlier in July,1991 the Senate passed its own version of the highway bill which authorized one hundred twenty-three billion from the highway trust funds to be paid out over a five year period and without imposing a further tax on gasoline. It would also provide an additional thirty-two billion for mass transit. Q- Further tax? A- Remember, you just talked about it—a nickel tax on gasoline was part of the 1990 budget compromise. A dangerous precedent was set at that time when members of Congress and the administration agreed to allow that gasoline tax to be divided between the general revenue, ostensibly to reduce the deficit, and the highway trust fund. After all, the tax was essentially a user fee, collected on users of the highway system at the gasoline pumps across the nation, to maintain the infrastructure. Q- Isn't a gasoline tax regressive—hurting low income people more than the wealthy? A- You’ve got a point. Seventy-six percent of this tax will be born by families with modest incomes. It has been estimated that those with incomes in the ten thousand range would face a two and a half percent increase in their federal income tax. Q- What were some of the other objections to the proposed legislation? A- Both the Highway and unemployment-benefit extension legislation could further dampen our economic performance. HR 5 provides an incentive for people to remain unemployed longer than they might without an extension of unemployment benefits and opponents claimed thousands of jobs would be jeopardized if the highway bill, HR 2950 moved ahead. Not only that, the gasoline tax would increase inflation and the cost of living for all Americans would rise as a result. Q- In other words, both bills together were seen as lowering our standard of living. A- That didn't seem to be the major objection. The accounting aspects and budget shenanigans were more important. Fred Grandy, a Republican from Iowa and Dan Rostenkowski, a powerhouse Democrat from Illinois hammered out creative technical maneuvers on the floor that would probably bore you to death. Q- Look—I've gotten this far—try me. A- Okay. We talked about Dan Rostenkowski, chairman of the powerful Ways & Means committee earlier. He wanted a cut off the top off any nickel increase in the gasoline tax.
This caused Bob McEwen of Ohio to declare that Rosty wants a deduction on a tax that hasn't been raised yet!" When Rosty took two and a half cents from the gas tax to offset the deficit in the fall of 1990, everyone was asked to take into consideration the unique situation of the budget accord and to act in a spirit of compromise. If they did, the leaders claimed, it would never happen again. Q- Oh sure—just where they were back in 1991 ready to take a second piece of the action. A- According to Dan Rostenkowski, only the net revenues can be spent. He wanted to take a nickel and reduce it by one and a half cents because business deductions cost the general revenue that amount. His critics said he wasn't taking into account the increased revenue from increased productivity and new jobs which improved infrastructure would bring. They countered claiming two hundred forty-three thousand new jobs at twenty-five thousand a job, brings in new income which would result in income tax bills of two or three thousand per job or a half billion dollars in new tax revenue. Q- That only makes sense. If you're going to calculate the losses you must also calculate the gains. A- Mr. Rostenkowski's opponents felt he was hatching another budget obfuscation gimmick. They argued, and you apparently feel correctly, that there should at least be a wash out. Q- What are some ways to get around Rostenkowski's demands? A- Okay. Let me count the ways. Fred Grandy's option would have increased the funding for infrastructure without raising the gas tax. Remember last year the five cents gas tax was split-half to the general revenue to mask the deficit and half into the highway trust fund where motorists think it all belongs. Grandy wanted to move the fractious 2.5 cents back into the trust fund—interest would accrue and would amount to about twelve billion. The advantages he saw were (1) no gas tax (2) at end of 1997 when the budget agreement ends there would be twenty billion more than under the administration's proposal (3) why raise taxes when we can draw down the trust fund? Mr. Rostenkowski was concerned that only net revenues be spent, stressing the necessity to keep a certain amount in the trust fund. He saw no problem in Grandy's plan with gross revenue vs net revenues because the principal wouldn't be touched until later. Without a gasoline tax the budget agreement allows a disbursement of sixteen billion in 1992, eighteen billion in 1993, and twenty billion in 1994. In the end he backed Grandy's proposal as a good compromise since it was certain that Bush would veto any highway bill containing a gasoline tax.
Q- What about the demonstration projects that are always included in a highway bill? A- Demonstration projects will get $6.8 billion or five percent of the entire bill over five years. David Dreier of California was bothered by demonstration projects, but Norm Mineta, another Californian and member of the Public Works and Transportation committee, assured him that this time the demonstration projects would be under local control—ninety-four percent of the funds would be under local control. Of course this made opponents fearful that the federal government could end up completing intersections, overpasses and stretches of road if the states couldn't. Tony Beilenson, also of California said, “We have to view this as an investment, not a tax….Americans have got to understand if they want this kind of system, as well as other programs, they're going to have to start paying for them.” Q- You told me once that you were at the meeting in Washington D.C. where the idea for Citizens Against Government Waste originated. A- That's right. I signed on at the very beginning when, at a meeting of the International Platform Association, Jack Anderson and J. Peter Grace decided to jointly look into the possibility of forming a citizens' organization to draw attention to the waste in government. Q- Then you must have access to all those ridiculous studies, like the causes of rudeness on the tennis court, and other funny things the taxpayers fund without ever knowing about it. A- They are hilarious. You should join Citizens Against Government Waste or read some of Grace's literature—it's better than a joke book. Q- How about a couple examples? A- Here's a few: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. An eighty-four thousand dollar study on why people fall in love. One million to study bicycling/walking and fifty thousand for a staffer to manage the project. A hundred three thousand to see if sunfish that drink tequila are more aggressive than sunfish that drink gin? Half a million dollars for a tribute to Lawrence Welk. 0ne hundred thousand for research on soybean-based ink. One thousand too study the sand on Waikiki Beach. $3.6 million on urban-gardening. two hundred and five thousand for a theater in Cleveland. fifty thousand for seedless grape research in Arkansas. $2.2 million to renovate an officers' club in Midenhall, England which included goldplated chandeliers, marble fireplaces and solid oak paneling. Twenty-three million spent by the Air Force to develop a custom designed fax machine
GAO says Air Force spent almost two billion on sophisticated electronic equipment to protect its fighter planes, only to find that most of it doesn't work and has been grounded or left unused in storage bins.
Q- I sure wouldn't mind studying that sand on Waikiki! A- But why focus on the little fish when there are larger fish to fry? Certainly it's easy to remember the chauffeured limousine service that cost taxpayers thirty-five thousand per year with approximately three fifths of the trips unauthorized. Examples like that of the Environmental Protection Agency employees' use of government cars for lunch at a cost of $45 a trip compared to cab fare at $5 a trip tend to stick with us because we can identify. It is harder to identify with the exploits of those who use military aircraft to shuttle back and forth even though the numbers are so much larger and should elicit even more outrage. Government planes cost anywhere from one thousand to seven thousand dollars per hour. Q- John Sununu made us all aware of infractions like that. A- According to official records between 1982 and 1984, two hundred sixty persons connected with the State Department and the USIA (U.S. Information Agency) spent four hundred thousand more than necessary to get to and from destinations. The trip which triggered a series of publicized investigations was made by a State Department employee and his family who returned to Iowa from an assignment in Uruguay via a six hundred mile twelve day luxury steamboat trip up the Mississippi River! Q- I love it! A- Records show thousands of foreign service officers have used ships as opposed to airlines at a cost of five to ten times as much. But all airline flights aren't cost efficient. One Congressman opted for a flight between Detroit and Washington D.C. in a government T-39 which cost fifteen hundred seventy-eight dollars instead of taking a commercial airline which would have cost ninety-five dollars. All too often transportation has been via military aircraft and when documented, is generally the most expensive item of any trip. In 1985 three out of five House members traveled abroad at least once. The tab amounted to over four million, not including transportation Q- Not including transportation? A- That's right, I said without the cost of transportation. Q- I remember reading in one of your books about Ronald Reagan giving some foreign aid to Ireland, because he's Irish or Scotch or—what is Reagan?
A- I think it had less to do with Ronald Reagan than Tip O'Neil—then Speaker of the House. The Irish Head of State, Garret Fitzgerald and Britain's Prime Minister, Margaret Thatcher, requested international support for their November 15, 1985 agreement to settle the political strife between Britain and Ireland with economic and social development. Assuming support meant dollars, Ronald Reagan proposed giving these first-world countries twenty million American taxpayer dollars per year over a five year period and an additional hundred fifty million in loan guarantees and credits. Generous? Maybe, but it's never enough so Congress sweetened the pot to fifty million cash per year over a five year period. Q- That's what I meant. A- I also pointed out something that would seldom be aired on television or carried in most local papers. Q- I know—you always try to bring to the fore things that aren't covered in the popular media outlets. A- In this case news about concessional financing is not a real hot item. In attempting to cut back on foreign aid Congress took advantage of still yet another opportunity to show how good intentions end in bad results. In the FY1987 budget the largest cut came in security assistance, which includes FMS (foreign military sales) loans. Supposedly $1.7 billion was cut in FMS financing but in reality there was a shift to the much more expensive (expensive for the American taxpayer) concessional financing. Concessional credits are offered at subsidized rates, sometimes three percent below the cost of money to the Treasury. According to Harry Shaw, former chief of the military-assistance branch of the Office of Management and Budget, the cuts may “look good in the short run since total outlays are reduced and the budget balance is helped, over the long run deficits will be larger because of lower receipts." Since the Reagan administration had been thwarted by Congress in the amount of aid it could give to other countries it attempted to make up for quantity by increasing the quality—that is offering loans on better terms than our own Treasury could obtain. Q- You know the one thing I've learned so far; you can't watch your representatives too carefully. It's impossible for citizens to know about, let alone evaluate and approve, what these people are up to in Washington. A- The one thing I would have liked you to have learned so far is that people—all people, wherever they are—are going to do what they want to do—period. As you can see, they'll find a way.
Unfortunately the same short-sightedness was used in devising a debt-relief formula to help countries who had borrowed at high rates in the past. Policy-makers in the Reagan administration considered the possibility of restructuring that debt, leaving the debtor countries to face balloon payments sometime in the future and definitely after the do gooders had retired. No one wants to face the heat but that's no reason to add more fuel to the fire. Those in positions to make hard choices are also, in positions that receive tough criticism. Until we make the status quo more uncomfortable than the discomfort incurred in making necessary changes the country is going to suffer. We can no longer afford business as usual and must push the chicken-hearted out of their places of power. Q-Everything is costing taxpayers more than it should and the court system is no exception. A mega trial in Chicago where thirty-eight gang members would be tried on twenty-two counts of murder and numerous offenses could cost $1.6 million just for court-appointed attorneys who would end up sitting around for long stretches of time. A- Since courts and police protection are two of the truly legitimate functions of government, they would get top priority in my book. Also our long range space program would get higher billing if I had any input. Q- That's right, NASA got quite a cut in the FY1992 budget and most people didn't pay much attention. A- I was aware, perhaps because I have a friend from college-days who has been with NASA since the intensity of the sixties. The FY1992 budget cut NASA two hundred seventeen million below the freeze level, which is less than it got last year. The entire cut came out of the space station. The Europeans pledged eight to nine billion or about one third of the projected cost of the station and have already spent one billion. Our cancellation is bound to hurt future joint ventures. Besides, we were the ones who enticed other countries to join us in the project. Half of Canada's space program was the space station and the entire Japanese space program was structured around it. It was hard to get the Europeans to join in in the first place because a large faction warned against our fickleness and wanted to go it alone anyway. Don't be surprised if we fail to get any cooperation next time. Q- I guess that's an example of short-sighted leadership. A-Senator Connie Mack of Florida told members of Citizens for a Sound Economy on April 7, 1989, of an experience he had as a newcomer to Capitol Hill. He found that almost everyone was against any new commissions and agreed there were too many already. But when a new commission was named Select Committee on Families & Children everyone advised him it would be suicide to vote against it. He didn't listen and sure enough his vote was
used against him in the next election. His point was that it is stupid to have to vote for something because of its name instead of what it does. Q- Senator Mack is one of the few people in Congress who appears to take the budget deficit seriously. A- He does seem to be a man of conviction and principle which must make it hard to deal with all the shenanigans constantly going on in Washington. As an example of budget gimmickry he brought up the refinancing of the REA which went on the books as a savings although it actually cost the taxpayers an additional fourteen to fifteen billion. Q-He remembers October 19, 1987; the day the stock market dropped five hundred points because it was also the day he started his run for the Senate. A-He used to be a banker, you know, so that may be significant. Also he remembers that immediately after the stock market crash, Congress talked about reducing the deficit by about sixty billion. A twenty-four billion reduction was actually agreed to in the November 1987 summit but with the passage of the catastrophic health care bill, thirty-five billion in extra revenue was needed instead. Q-I bet even though Senator Mack had more elderly constituents than most he voted against the catastrophic health care bill. Am I right? A-Right on, and although I'm sure he did it out of a sense of fiscal responsibility it turned out to be the right thing to do to gain favor with his constituents. The elderly were up in arms over the bill and it was quickly repealed. Q-Do you favor a Balanced Budget Amendment? A-The people I most respect and admire are in favor of such an amendment but although I am anxious to discuss the issue with you, I must say I am not fully committed to the movement. For a long time I favored a turnover in Congress without resorting to an amendment to limit terms. Just this week I've changed my mind on that one, so I have an open-mind. Q- What changed your mind about term limits? A-As I told you, in all decisions I take into consideration the fundamental principle that all men, nations, and in this case, states, are going to act in their own best interest. Because of the seniority system in Congress, voting incumbents out would not be in any state's best interest. If California were to substitute fresh new faces for incumbents, all California's representatives would be low men and women on the totem pole. As the most populous state in the nation we'd be giving up all our clout.
Now we have representatives, like Mr. Panetta, who chair various committees and have control in what gets brought to the floor, how the debates are set up, the voting and so forth. Congress is not a gentle place and a lot of things are what you and I would call rigged. Certainly it would look that way to an unsophisticated fair-minded ten year old, and they almost always call them as they see 'em. Anyone who has been around kids knows that how they see 'em is generally stark unbiased reality. Q- You mean the seniority thing changed your mind when it came to term limitations? A- Yes, but I'm not certain an amendment is the correct tactic when it comes to the federal budget. However, until the seniority thing dawned on me, the ballot box was a viable alternative. The messy budget process admits no acceptable alternative in its present state. Q-Has a balanced budget amendment ever been brought to a vote? A-Congress has been kicking around a balanced budget amendment since 1936. Such an amendment was attempted in 1982 and failed by forty-five votes. It was tried again on July 17, 1990. One hundred fifty-five organizations worked calling the fifty members of Congress who were wavering. Representative Larry Craig of Idaho claimed to have two hundred seventy of the two hundred ninety votes needed to pass the amendment. That’s two-thirds if every Congress person showed up for the vote. Actually only two hundred eighty-six yes votes were needed because of absences. Even so, proponents were only able to muster two hundred seventy-nine in favor of the amendment—seven votes short. Two thirds of the members have to vote for the amendment for it then to be ready to take to the states for their vote. If adopted, the balanced-budget amendment will no longer allow a voice vote for spending measures. Q-I bet I'm not the only one ignorant of the procedure to get a constitutional amendment. Could you give a brief synopsis? A- Amending the Constitution is not something most of us do everyday so don't feel ignorant. Article V of our Constitution allows for amending by either Congress, with a two-thirds vote of membership which then must be ratified by three-quarters (38) states or state legislatures can petition Congress for a change. Over the years there have only been sixteen amendments, in addition to the ten in the bill of rights that have made it all the way through the process. Thirty-two states had expressed a desire for a balanced budget amendment, but some have dropped out of that push as of 1990. However, polls show between seventy to eighty percent of the public favors such an amendment. A balanced budget was taken for granted years ago before the 16th Amendment allowed the imposition of the income tax.
Q- An income tax was expressly prohibited in the U.S. Constitution prior to 1913. A- Provision for a balanced budget should have been part of the 16th Amendment. There was no need to specify a balanced budget earlier. Q- Representative Billy Tauzin of Louisiana said that it was only in 1986 that Congress appropriated more than the President requested. In every other year during the Reagan administration, the Congress managed to pass a budget less than the President requested. Neither Ronald Reagan nor George Bush ever submitted a balanced budget. The general public can't seem to get excited about a balanced budget—they see no relevance to their own personal lives. A-Perhaps they'd feel differently if they had seen the study which appeared in the December 1989 Fortune magazine showing a balanced budget would raise the income of citizens by eleven percent in less than a decade. Taxes will grow faster than the income of the average American worker if current law remains unchanged. It is unconscionable to think of increasing taxes on incomes that are stagnant or shrinking! Q-Usually proponents of balanced budgets try to scare people. A-A lot of the facts are scary—there's no two ways about it. Representative Joe Barton of Texas tried to make the facts meaningful the day before the House voted on a balanced budget amendment with analogies like: one trillion = 1,000 billion; one billion = 1,000 million; one million = 1,000 thousands. He warned us that every American's share of the debt was twelve thousand dollars and that figure has been increasing by seven hundred fifty dollars every year for the past several years. He claimed the balanced budget amendment would help solve the problem, or at least prevent it from happening again in the future. He advised us that the then current three trillion debt ceiling was to be raised in August, 1990 to three and a half trillion; that the debt is increasing at about a hundred and fifty billion a year, or twelve billion a month or three billion a week or five hundred million day or eighteen million an hour or almost three hundred thousand a minute or four thousand dollars per second! Did anyone heed the warning? Did anyone care? Were any steps taken to check this precipitous dash to our own destruction? Q- You are scaring me—even though I know the answer. A- The answer is we've managed to exceed all Mr. Barton's direst predictions. A year later we've raised the debt ceiling to $4.1 trillion and that debt is now costing close to six thousand dollars a second. Q- What do you want me to do—pray?
A- I may have just convinced myself to fight for a balanced budget amendment because that's the answer I was about to give you! Q- Really? Pray? A- Fight for a balanced budget amendment. Q- I may have witnessed a conversion. A- Very funny. Why don't you support a balanced budget amendment? Q- I suppose it's because I don't understand it very well. This stuff is complicated, you know. And I'm not alone in simply wanting someone else to figure it all out. A- You're absolutely right—you're not alone. The trouble is most people form opinions without the facts or putting effort into weighing the pros and cons. They speak; even shout out of ignorance and you can see where that kind of irresponsibility has taken us. I'm sorry, but the buck stops here—with us—with We the people. And there's no getting around it unless you don't mind passing to your children a country very different than the one you inherited. Q- Weren't there several versions of the balanced amendment presented in 1990? A- There was the Stenholm-Craig Amendment and the Barton Amendment, the one supported by Milton Friedman. Q-One of the respected and admired you referred to earlier. A- Section I of the Barton Amendment required Congress and the executive branch to agree on an estimate of receipts and outlays. Section II capped the debt as of the first day of the second year after the amendment is made part of the Constitution. Section III mandated that the President submit a balanced budget. Section IV said the estimates reached and referred to in Section I cannot increase at a rate faster than national income increases. In other words it prohibits taxes from rising at a faster rate of growth than national income. Q- I think Section IV is my favorite. A- Section V said Section IV can be waived under declaration of war. Section VI said all items currently known as off-budget expenses must be included in these determinations. Section VII gave Congress the authority to implement the legislation and Section VIII set 1995 as a starting date. Sec. VIII received a lot of criticism from opponents but it made sense because 1995 was the date that budget summiteers targeted for a zero deficit. Q-I bet I'm not the only one ignorant of the procedure to get a constitutional amendment. Could you give a brief synopsis?
A- Amending the Constitution is not something most of us do everyday so don't feel ignorant. Article V of our Constitution allows for amending by either Congress, with a two-thirds vote of membership which then must be ratified by three-quarters (38) states or state legislatures can petition Congress for a change. Over the years there have only been sixteen amendments, in addition to the ten in the Bill of Rights, that have made it all the way through the process. Thirty-two states had expressed a desire for a balanced budget amendment, but some have dropped out of that push as of 1990. However, polls show between seventy to eighty percent of the public favors such an amendment. A balanced budget was taken for granted years ago before the 16th amendment allowed the imposition of the income tax. Q- An income tax was expressly prohibited in the U.S. Constitution prior to 1913. A- Provision for a balanced budget should have been part of the 16th amendment. There was no need to specify a balanced budget earlier. Q- Representative Billy Tauzin of Louisiana said that it was only in 1986 that Congress appropriated more than the president requested. In every other year during the Reagan administration, the Congress managed to pass a budget less than the President requested. Neither Ronald Reagan nor George Bush ever submitted a balanced budget. The general public can't seem to get excited about a balanced budget—they see no relevance to their own personal lives. A-Perhaps they'd feel differently if they had seen the study which appeared in the December 1989 Fortune magazine showing a balanced budget would raise the income of citizens by eleven percent in less than a decade. Taxes will grow faster than the income of the average American worker if current law remains unchanged. It is unconscionable to think of increasing taxes on incomes that are stagnant or shrinking! Q-Usually proponents of balanced budgets try to scare people. A-A lot of the facts are scary—there's no two ways about it. Q-How about a run down of those who spoke pro and con the balanced budget amendment—just in case potential supporters or opponents would like to contact their own Congress persons. A- It sounds like maybe you are ready to fight for an amendment! As briefly as I can make it then, the following persons spoke in favor of the amendment: Peter De Fazio of OR, Beverly Byron of MD, Dave McCurdy of OK (He said the first installment would be paid this year with four additional installments ensuring the amendment would be completely in place in 1995 to guard the future.
This was in answer to Jack Brooks scorn that it was not to "start" for five years!) Jim Moody-WI, Joe Barton-TX, Thomas Carper-DE, J.J. Pickle-TX, George Gekas-PA, James Olin-VA, Bill Frenzel-WI, Bob Dornan-CA, Billy Tauzin-LA, Bob Clement-TN, Mickey Edwards-OK, Claude Harris-AL, Matthew Rinaldo-NJ, Craig James-FL, Jerry Huckaby-LA, Toby Roth-WI (Roth claimed that the vote could fairly be seen as a vote between special interests and the people in general), Saiki-HI (Saiki claimed it was a small step but in the right direction), Wayne Owen-UT (He claimed to be a "death-bed convert" and said it would do violence to good social programs but the deficit itself is doing more harm to future generations. He agreed with Mr. Frenzel that what was needed was courage and not process change. The trouble Owen sees is that we don't know how to enforce such an amendment. No one wants to turn the economy over to the nine Supreme Court Justices. Anyway he came to the reluctant conclusion that at least this amendment "makes us make" the decision to cut!), Dick Cheney-WY, Fred Upton -MI (Because the 1974 budget process reform didn't work nor did G-R and its various revisions. He reminded everyone that 1969 was the last year Congress adopted a balanced budget.) Bill Paxon-NY, Charles Bennett-FL ( He admitted that many of the things the government does today were never considered to be government's business when he came to Congress 40 years ago!) Don RitterPA, Andrew Jacobs-IN, Robert Lagomarsino-CA, Clarence Miller-OH, Bill Emerson-MO, Bob Smith-NH, Charles Pashayan, Jr.-CA, John Duncan-TN ("We've been more generous with other peoples' money than we would have been with our own. The Crime Bill and Education legislation were passed in the last couple days which were 16%-18% increases in appropriations. There's no discipline!"---Wasn't Davey Crockett from Tennessee?) Barbara Boxer-CA (Ms. Boxer used her time to blame Reagan and Bush and said she was going to vote for the amendment out of frustration but "frustration doesn't make good policy") For the Barton (tougher version) amendment: Chuck Douglas-NH, Tim Valentine-NC, Jimmy Quillen-TN, James Inhofe-OK, Charlie Stenholm-TX, Larry Craig-ID, Chris Cox-CA, Marilyn Lloyd-TN, John Porter-IL, Austin Murphy-PA (very reluctantly), Lynn Martin-IL, Glenn Poshard-IL, Bill Sarpolius-TX, Bill Dannemeyer-CA, Earl Hutto-FL, Carlos Moorhead-CA, Richard Ray-GA, D.French. SlaughterVA, James Hayes-LA, Steven Schiff-NM, Jim Kolbe-AZ, Wally Herger-CA, Denny Smith-OR, John Tanner-TN, Gerald Kleczke-WI, Tim Penny-MN, Butler Derrick-SC, Steven GundersonWI, David Dreier-CA, Richard Stallings-ID, Tom Lewis-FL, Bill McCollum-FL, Lewis PayneVA, Mel Hancock-MO, Elizabeth Patterson-SC, Jim Chapman-TX, Newt Gingrich-GA, Doug Bereuttr-NE, John Miller-WA, Helen Bentley-MD, Barbara Vucanovich-NV, Bob Smith-OR, Bill Grant-FL, Cass Ballenger-NC, Tom Bliley-VA, Dana Rohrbacher-CA, Jack Fields-TX, Dennis Hastert-IL and a few whose names I failed to record. The following persons spoke against the amendment and many more voted against it: Tom Downey-NY ("I think its a dumb idea. . .A balanced budget is not a goal") James Trafficant-OH, David Obey-WI, Joe Moakley-MA, Richard Durbin-IL, Don Edwards-CA, Romano MazzoliKY, Pat Schroeder-CO, Dante Fascell-FL, Barbara Kennelly-CT, Barney Frank-MA, Ted WeissNY(Can't estimate properly--the bill is a sham--what if there are natural disasters?) Robert Wise, Jr-WV (Amendment feels good-WV has a balanced budget amendment and a line-item veto clause but it also has a deficit as do 27 of the 49 states requiring balanced budgets in their constitutions!) Jim Slattery-KS, William Hughes-NJ (We don't need a constitutional amendment
to give us backbone--the electorate can provide the backbone needed -he didn't want to tamper with the sacred Constitution nor give decisions re; budget matters to the Supreme Court--he claimed such an amendment would make the deficit subject to a point of order) Bill AlexanderAR (He didn't like the Social Security trust funds included as "income") Sander Levin-MN (He said we should mend our ways and not our Constitution--to pass the blame for our debt onto a flaw in our Constitution is out and out wrong!) Rose Oakar-OH (She wanted to cut the Pentagon's budget. Claimed defense spending has increased 200% in the last decade. Was distressed about the use of the Social Security trust funds which have long been slated to be taken out of the accounting in 1993. She ended by saying "If you're for seniors and disabled people vote against this amendment.") Joelene Unsoeld-WA (She praised LBJ for giving us our last surplus budget--she was also against giving control of our economy to judges. Yeah, right, better to leave it out-of-control!) David Skaggs-CO (He saw problems with estimating receipts and using Social Security trust funds.) Dennis Hertel-MI ("The tool we need is a president that leads"--He blamed the mess on Reagan.) Richard Gephardt-MO, Charles Schumer-NY (He suggested instead of the amendment we should simply ask the president to come before the American people and tell them "We have a crisis!") Jack Brooks-TX (He led the opposition, claiming such an amendment is not "workable".), Charles Hayes-IL (He carried on about the need to increase revenue and cut defense.) Bruce Vento-MN (He wants to keep power with a simple majority.) Richard Lehman-Ca (He agreed the amendment gives to much power to minorities and that we have to make Panetta's "tough decisions"!) Leon Panetta, chairman of the House budget committee spoke with gusto against the balanced budget amendment! Q-Hold it! Hold it! Your own Congressman? Some fighter you are! A- Unfortunately Mr. Panetta claimed the amendment was a last hurrah, a simple solution requiring no sacrifices. He explained that presidents never submit balanced budgets and that the amendment was a refuge, a hiding place an escape from "tough choices". He said no gimmick can overcome the people's distrust of elected officials. He also predicted the FY1991 deficit would be $232 billion or without counting Social Security trust funds, $300 billion. Even with a constitutional amendment, he said, we will still have to make tough choices. Congress can not find political guts in any process change—“Harsh realities of the 90s are here!” Q- Do you ever hear politicians come up with things that you know are not true? A-Do you mean have I ever caught them lying? If a person speaks with authority, but errors, that is like speaking a falsehood when the true state of affairs is known. The only honest thing is to say you don't know when you don't. I've caught members of Congress doing both. Q-You mean knowingly stating an untruth and arrogantly pretending to the truth when they have failed to do their homework? A-During a C-Span interview with Congressman Bill Richardson of New Mexico on October 9, 1990 a caller from Arizona claimed that the budget for FY1991 was larger than the budget for
FY1990 and therefore should not be referred to as a cut. Mr. Richards replied, “Trust me, Sir. There are no increases anywhere in this package for any agency."” Q- No kidding! A- He also said “Talk show hosts come out with facts that take us weeks to unravel.” Q- At least he admitted they come out with facts, not fiction. A- “It's a political tactic,” he said, “when people claim they haven't had a chance to review what they are voting on.” Q- Boy, I believe that one! Not that it's a political tactic, but that elected officials don't read legislation before they vote on it. A- I've heard many of them admit as much and accuse their colleagues of the same thing. I hate to be critical, you hate to be critical, we all hate to be critical, but this country is in the trouble it's in precisely because nobody likes to be critical. We too easily settle for a Congress, that in many instances, is simply not up to the job. If we, as ordinary citizens, choose to be nice rather than appear harsh and critical and demand intelligence and integrity, we must be prepared to suffer the consequences. However we should remember we are choosing, not only for ourselves, but for our children who will suffer after us. Having said that, I'm going to have the courage to include it in my opinion, Mr. Richardson does not come across as a very bright or accurate Congressman. He definitely said, and I rewound the tape to make certain, “First of all there are two hundred forty million federal employees.” Q- Come on! That sounds like a slip of the tongue. We may not be public about it, but you and I do it all the time. A-Could be. But former Senator William Proxmire of Wisconsin, as respected a gentleman as you are likely to encounter, makes claims for the Social Security system that I know without a doubt are completely untrue. In his case I believe he is assuming facts from his own bias and just hasn't bothered to check his information. Q-Many organizations, both knowingly and unknowingly, put out false information. For instance Sane, a citizens' disarmament organization. A- You're right. I was given a Sane leaflet outside my local post office which claimed “While the military budget has increased two hundred fifteen percent since 1980, health care has declined.” But checking into the claims I found the proportion of GNP devoted to defense fell steadily from over thirteen percent in the early 1950s to under five percent in the late 1970s. The ratio began to rise in 1979, but has averaged less than six percent in the 1980s. The defense ratio was smaller
during the Reagan administration than during any other time since World War II except for the Carter period. Q-You might be interested in another flyer the organization handed out to the general public and which I saw in February, 1989. Sane came up with figures showing the dispersal of every dollar; figures which differed substantially from those cited by then Senator Rudy Boschwitz. Boschwitz 27 cents = military 14 cents = interest on debt 59 cents = appropriations Shane 52 cents = military 12 cents = interest 36 cents = appropriations. etc. A- I have a cartoon on my wall showing the Chief Statistician sitting at her computer surrounded by volumes of books and charts and reading a document. The caption reads, “Thirty-seven percent of all statistics are wrong.” That sums up my feeling as far as statistics go. I use them, because that's the name of the game, but I'm swayed by ideology, never numbers. In the fall of 1990 Dan Rostenkowski told his colleagues that “We're going to regret cutting so little this year.” He was looking at the hundred thirty billion dollar deficit going into FY1991 and realizing that sixty-six billion would have to be cut in the FY1991 budget in order to reach the revised Gramm-Rudman deficit target for that year. Q- The original Gramm-Rudman targets called for zero deficits by the end of FY1991. Isn't that right? A- Right but those targets were revised and the zero target was extended to FY1993. Q- Fat chance! A- The FY1991 target that had Mr. Rostenkowski worried was sixty-four billion. He could see that any meaningful deficit reduction would require some real belt tightening and he rattled off a list of needs (wants) that would have to be scrapped or at least postponed. This was on the eve of the last minute budget compromise. But John Porter of Illinois was a bit more philosophical “It's (referring to the continuing resolution CR) our fault. We have insufficient commitment to the process. …We do our job five weeks late.” He would not support another CR even if it were short term and clean, because no matter how it starts out it always ends up an omnibus bill full of everything but the kitchen sink. Q- Clean? I guess that means without all kinds of non-germane amendments.
A- That's the meaning of clean in this context, but nobody ever said anything about honest. A- The 1990 budget compromise which changed the process for fixing the FY1991 budgets and beyond, also raised taxes by a minimum of one hundred seventy billion and allowed spending to increase by at least two hundred forty-five billion. Entitlement spending was projected to grow by over two hundred billion over the next five years. Savings are as phony as a _______. Q- Didn't that budget compromise call for cuts as well as spending increases? A- The trouble is we get real spending and phony cuts. Q- Why am I not surprised? A- Budget Director Darman counted the transfer of $5.6 billion of revenue from the Postal Service to the general budget as an entitlement cut. Increasing taxes on banks was also counted as an entitlement cut, as was the provision shifting the time when certain retirement benefits are paid to federal employees. Delaying some student-loan payments was considered an entitlement cut, while agricultural savings were made contingent on the increasingly unlikely completion of international trade negotiations. Q- Hold it. I just want to make certain I understand what entitlement mean. A- There's discretionary spending which requires annual approval and non-discretionary spending which does not require annual approval. People or departments are entitled to the nondiscretionary benefits if they fall within the guidelines written into the legislation. Mr. Darman considered the failure to change the seventy-five percent premium-subsidy in the Part B portion of Medicare to be an entitlement cut. Q- You mean because there was no change in the premium it was called a cut? You said earlier that Ronald Reagan backed down from his own proposal to lower that seventy-five percent subsidy by a measly ten percent, making it a sixty-five percent subsidy. How, almost ten years later, when an attempt to lower the subsidy by a whopping fifty percent for beneficiaries with incomes above one hundred twenty-five thousand, asking them to pay seventy-five percent of the real cost instead of only twenty-five percent which means going from $31.80 a month to $63.60 a month—how, when that attempt failed, can Richard Darman possibly get away with calling no change an entitlement cut? A-Mr. Darman is a professional numbers cruncher—his job is to make things tidy—to make them fit and come out on paper as promised. The elected officials should be the real object of your wrath. Provisions changing direct-loan programs into guaranteed-loan programs are counted as entitlement savings, demonstrating that politicians have failed to learn, even with the on-going savings and loan fiasco, that off-budget spending still costs real money.
This latest budget-process reform, by effectively trashing Gramm-Rudman, actually makes it easier for Congress to spend other people's money. Q- Where is Davey Crockett when we need him? A- What compromise was there between the Republican administration and the House Democrats in the fall of 1990? There was no reduction of the capital-gains tax, no call for limiting taxes, no call for a balanced budget amendment, and no call for a line-item-veto. Instead there were deficit targets and caps on domestic, defense, and foreign-aid spending, all automatically adjusted upward whenever economic and technical assumptions are found to have been too optimistic. This is a giant loophole and so is the provision that caps can be adjusted upward in an emergency. It would have been far better to adopt the threatened sequester which would have been automatic. All the President had to do was fail to accept the budget compromise advanced by Congress. Q- George Bush did say no once, but Congress gave itself enough time to come up with another compromise budget. You mean he could have said no to the second budget proposal and forced sequester? A-Absolutely. Once a sequester was in effect then Bush could have forced some real spending reductions. The FY 1991 budget called for only a 2.6 percent increase, less than the rate of inflation, which in Congressionaleese works out to a cut. It called for an extremely modest forty-seven billion cut in entitlements to be spread out over five years. The budget proposal also called for a cut or elimination of the deficiency payments to those getting over one hundred twenty-five thousand in non-farm income. It would increase Pell grants for education for the poor but increase loans for middle income people—neither a cut nor an increase but merely a change in the mix of loans and grants. It would re-target the school lunch subsidies and cut the size of the subsidy for the wealthy. In the health area the budget proposed to take more from certain doctors and accelerate malpractice reform. $11.1 billion was allocated to the war on drugs. Project HOPE was to receive $2.1 billion and HOME $1 billion—both projects under the auspices of HUD. Q-It sounds like they never terminate programs, only add new ones. A-For eight years Ronald Reagan tried to kill a number of programs, pointing out that no government program should become immortal. To cut a program in order to trim the deficit just didn't sell. George Bush has added a twist—trim an existing program in order to shift funds to another. The spending caps written into the October 1991 compromise makes this the only way to fund new programs.
Q- Wasn't the increased government spending during the Reagan Administration due to the huge buildup in defense? A-Domestic spending rose under Ronald Reagan from three hundred thirteen billion to five hundred thirty-three billion. If you eliminate debt and defense expenses, total domestic spending for all levels of government, local, state and federal, equaled twenty-five percent of GNP or over $1.3 trillion in 1989. Q-According to the National Taxpayers Union, three bills were introduced in the Senate during 1991 advocating spending cuts and three hundred and fifty bills were introduced requiring that more money be spent. A- In the summer of 1991 former U.S. Senator, William Proxmire told the International Platform Association audience that he put the comparison at a thousand to one for the people appearing before his committee seeking more money and those asking that spending be cut. Q- Do you get the feeling that average citizens are not serious about reducing the deficit? A- You're right, but that's why education and leadership are needed. What we need today is a public servant like Charles Dawes, first director of the Budget Bureau, who in 1921 ordered every bureau chief in government to save a minimum of twenty-five percent of his annual budget allocation even if it meant dismissing employees. For too long now our representatives have relied on taxpayers to absorb the cost of providing for one need/desire after another. Politicians seldom ask for restraint. They never seem to consider the possibility that a majority of citizens, if asked, might, like Mr. Dawes, just care enough about the deficit to take some initiative and begin to prioritize. Responsible people do it all the time when it comes to their own money. Q- People seem to forget that the only money government has is what they collect from the people. I think you must admit, however, that recent budgets have shown spending restraint. A- Oh, dream on! That's what those who want to raise your taxes are hoping you'll believe. The budget compromise for FY1991 allowed for an eleven percent hike in discretionary spending— twice the rate of inflation. Q- I wrote a paper about the budget when Ronald Reagan first became president. I remember in 1981 non-defense discretionary spending was twenty-five percent of the budget and entitlements accounted for thirty-two percent. A- Great! That means over ten years, defense has come down a smidgen to twenty-three percent of the budget and entitlements at forty-eight percent now occupy almost half the budget. In the FY1991 budget, non-defense discretionary spending accounted for sixteen percent, and the other thirteen percent was earmarked for interest expense. If entitlements are left unchecked they may reach seventy percent of the budget by 1996.
Q- According to the Congressional Budget Office, the 1976 deficit was 4.3 percent of GNP and in 1989 it was only 2.9 of GNP. So I'd say things are looking up. A- Wrong!! Deficit refers to one single year and what you should be looking at is our over all debt load as a portion of our gross national product. The debt itself is increasing and the interest we pay to carry that debt every year now amounts to almost three hundred billion. In the 1980s the Organization for Economic Cooperation and Development (OECD) showed the USA deficit as a share of GNP, below the OECD average. Today among major industrial nations, our share of GNP is smaller only than Italy's as a percentage of the general budget. Q- How can debt keep building up when services are cut back and we are told about the inability of Congress to spend? A- You keep forgetting Washington's definition of a cut is a decrease in the increase. A typical DC cut was illustrated by the so-called Medicare cut. Instead of increasing by 11.2 percent the FY 1991 budget settled on a ten percent increase. Discretionary spending would have grown at a rate of 3.5 percent and thanks to the great budget compromise it will only be allowed to rise two percent. A-The five year deficit projection was $802.8 billion higher in January 1991 than what was projected for those same five years back in January 1990, ten months before the budget accord. Q- How can you know this in the summer of 1991? A- As I write, these events haven't happened yet but the projections were issued at the beginning of 1990 and 1991. The point is they have changed mightily in a year. In January of 1990 the administration projected a deficit for FY 1991 (ending September, 30 1991 remember) of $3.1 billion, for FY1992 of $25.1 billion, and a surplus at the end of FY 1993 of $5.7 billion, a FY1994 surplus of $10.7 billion, and a Fy1995 surplus of $9.4 billion with a total deficit over the entire five years of $62.4 billion. After the October 1990 accord that got rid of the Social Security surplus, and the implementation of the new budget process, the following projections were issued by the administration in January, 1991 for those same five years: FY1991 (again, ending September 30,1991) the largest deficit projection ever recorded up to that time of $318.1 billion, of $280.9 billion, another record in FY1992, of $201.5 in FY1993 instead of the surplus predicted in January 1990 for this time period, continued deficit of $61.8 billion in FY1994 and a $2.9 billion deficit at the end of FY 1995 leaving a total deficit for those five years of $865.2 billion—over $800 billion more than the five year deficit total first projected. Q- I don't think anybody pays any attention because an exchange of higher taxes for deficit reduction has never worked. A- You and all of us ordinary citizens have plenty of reason to be cynical. You're absolutely right—Bush supposedly broke his no-new-taxes promise in order to cut the deficit. The idea was
to trade one hundred sixty-five billion of taxes for five hundred billion deficit reduction over five years. Mid-way into the first year the forecast for the cumulative deficits through FY1995 has doubled to over a trillion dollars. Q- Promises, promises. A- I don't know how much more you can take, but I've had it. Paul Craig Roberts, claimed in a Wall Street Journal article written July 30, 1991 that, “Before the budget agreement was reached, the government knew that its claims for deficit reduction would not be achieved. It withheld revised economic assumptions. . .” I also knew those claims wouldn't materialize; but not because of pre-digested figures from any budget cruncher's office but because of the nature of the beast—or should I say beasts—our spineless, avoid-the-truth, duck-responsibility members of Congress—the ones that unhappily make up the majority. I've watched them for seven years now and they are pretty darn predictable. The revised forecast was published in the October 3, 1990 issue of the Wall Street Journal. The fraud was praised as realism. Co-mingling the savings and loan bailout with the operational budget inflated assets as they came under the governments control as S&L takeovers. Of course their sale counted as negative spending on the books and is not something Mr. Darman is anxious to record. Q- Mr. Darman (Richard Darmen, head of OMB) is a very creative accountant. A- You're not kidding! Again, according to Dr. Roberts, Mr. Darman was able “to project federal outlays in 1994 fifty billion below the 1992 level, thus giving the appearance of expenditure reduction. Mr. Darman has managed to produce a larger deficit with a tax increase and a defense build-down than Mr. Reagan achieved with a tax cut and defense buildup.” Q- Why can't they cut? A- They promised to cut. Forget the entitlements for a minute. The October 1990 agreement divided all discretionary (over which they had some choices) spending into three areas; defense, foreign aid and domestic spending. The pay-as-you-go idea was if you wanted to increase children's benefits, for example, you would have to take from workers training or something else within the domestic budget. You were not allowed to cut aid to Egypt because that would be interfering with the foreign aid budget, nor could you kill a weapon system because the defense budget was to be kept separate. This was to be for the first three years of the five year plan. Beginning in FY1994, Congress could transfer goodies from one cookie jar to another. Q-How was that radically altered projection justified?
A- Spending is only supposed to increase by 2.6 percent in 1992. The FY1992 budget complies with spending limits contained in the Oct 1990 budget accord of $290.8 billion on military spending authority, $21.8 billion on foreign aid and $200 billion on domestic spending programs that are authorized annually. The remainder of the budget goes to interest payments and spending on programs that are distributed by formula, such as Social Security and farm subsidies. Facts show there has been a twelve percent spending increase in the FY1991 over the FY1990 budgets and another 7.4 percent increase FY1992 over FY1991. George Bush will have spent in his first term, six hundred sixty-seven billion above the Reagan growth rate, if all goes well. The hundred eighty-nine billion deficit run up in Reagan's last year was considered a catastrophe at the time. Like seeing violence night after night on the television screen, the public has become numb. The projection cannot, in my opinion, be justified as you asked, but it can be explained to some extent. Q- Then please explain it. A- In a word—loopholes. Q- Okay—I get it. Off-budget stuff like the Gulf War, Savings and Loan crisis… A- And anything else your member of Congress can get declared as an emergency. Q- Forget this member of Congress stuff. The Bush administration is setting a poor example. First of all it looks like the allies are coming through with the cost of the war so there's no emergency there. But the administration went ahead and declared extra aid to Israel an emergency under its request for Desert Storm funds. A-Everyone on Capitol Hill is playing what journalists have been referring to as spend it but don't count it. Q-They've been playing that game for years, but something tells me they've come up with some new twists. Am I right? A- This time they use reserve trust funds because spending out of reserves only requires a simple majority vote in the Senate. Any spending not declared in the 1992 budget is supposed to be subject to a point of order. An objection raised in that manner can only be overcome by sixty votes. Q- It doesn't seem fair, but you can see the attraction of the reserves. A- You want to talk about fair and unfair?
The 102nd Congress opened with a shameful debate on the House floor in which Republican Representative Nancy Johnson of Connecticut emerged as a heroine in my book. She refused to be silenced by House rules until she had had her full say on what she regarded as a shameful disregard for law and justice by the majority party in the House. The problem was the reneging on the terms of the long negotiated budget compromise wrenchingly reached at the end of 1990. The budget negotiators were very much aware that the OMB (Office of Management and Budget) has a bias for controlling spending whereas the CBO's (Congressional Budget Office) bias is toward expanding spending. It was only because the negotiators finally agreed to use OMB figures that an agreement was reached. The first act of the 102nd Congress however, was to change the term of that agreement; not with a bill that would surely be vetoed by President Bush, as the budget compromise itself would have been if it were not for the stipulation that OMB figures were to be used, but by using new House rules. The new rules say any bill that doesn't use numbers from the CBO or the Joint Tax Committee can be ruled out of order on the floor of the House. This stipulation kills a capital-gains tax cut before it is even formulated. OMB estimates additional revenue from a reduction in the capital gains rate over six years of $12.5 billion in contrast to the $11.4 billion loss predicted by the Joint Tax Committee. Q- I heard Newt Gingrich spouting about unfairness on C-SPAN on October, 10 1990. He claimed that a vote was taken on a two hundred sixty-eight page amendment, sight unseen. According to Mr. Gingrich, Democrats had sixty-two waivers of rules but wouldn't allow Republicans to vote on their no tax budget plan because it did not meet the Bush mandates. The Congressman spoke of a poll which showed that seventy-six percent of the people were opposed to a tax increase and eighty-three percent favored spending cuts as a way to cut the deficit. A- Herbert Stein, presently a fellow at the American Enterprise Institute, shared his ideas about the FY1991 budget in a December, 1990 article in the Wall Street Journal. He started with his idea of an ideal budget which should allocate resources to investment, including education and provisions for the poor, without interfering with incentives to efficient production. He was glad that the tax increases enacted in the October 1990 compromise package would reduce consumption by the wealthy. Q- That is hard for me to understand since, aside from the luxury tax, most of the revenue comes from increases in excises on cigarettes, alcoholic beverages, air travel, gasoline and telephone; all consumed in large amounts by the poor. A- Don't forget itemized deductions were capped for those making over a hundred thousand and dependency exemptions were also taken away from higher income earners. Mr. Stein did remind me of your idea of a philosopher-king when he claimed “Reduction in the share of the national income devoted to producing and consuming those products will be helpful from the standpoint of health and safety.” He praised the earned-income tax credit, child-care provisions and
extension of Medicaid benefits to a larger number of poor children as furthering the goal of providing for the poor. Q-In his 1989 book, Governing the $5 Trillion Economy, Mr. Stein claims that our present budget process fails to allocate the nation's resources well because there is not enough accurate information readily available. Would you agree with that? A- I've heard the bit about poor information from numerous qualified sources from all sides of the political spectrum. That, plus my own research experience makes me certain Mr. Stein is right in that contention. However allocating well seems to be a subjective evaluation and I would suggest that he would find little, to no doubt, that Americans, almost to a person, would agree that allocations are best made by individuals in the marketplace rather than by government. At least that is what other nations, many of whom are now asking for our leadership and advice in this area, have heard us advocate for two hundred years. Q-Well I don't think Mr. Stein meant we should have a planned economy but that our politicians should take a more long range attitude when dealing with our federal budgets as well as policy decisions that affect millions of people and perhaps generations. A- It would be hard to disagree with that, but a should doesn't mean it's feasible. The squabbles over budgets that I have witnessed members of Congress indulging in over the years, reminds me more of children slinging mud at one another in a sandbox rather than statesmen with the ability to consider anything long range. Q- I take it you haven't read his book. A- Unfortunately, no. Q- Well, I think I am giving you the wrong impression of what he is saying. He does favor budget process reforms such as you advocated in your own writing a few years ago—especially capital budgets. A- We'd like to think if the general public had all the facts it would act rationally and preserve the politicians and the nation from both themselves and the influence of powerful groups vying for an ever bigger piece of the economic pie. Unfortunately we can’t test this premise because there are presently no accounting and reporting systems in place to accurately inform the public, or the politicians for that matter, about the financial health of the nation. That's where a capital budget comes in. Q- I don't know a thing about capital budgets. A- The idea is to separate the federal budget into two components; an operation budget, much like a private firm’s profit and loss statement, and a capital budget, similar to private industry’s balance sheets. This would give a much clearer picture of the true budget (and deficit). Borrowing to finance investments would be out in the open where it could be fairly considered.
Q- What does the government use now? A- Right now the federal government doesn’t follow generally accepted accounting principles (GAAP); it uses cash-basis accounting although it prohibits publicly traded corporations from doing so. In 1975 the federal government even predicated bailout loans to New York City on that City’s changing to GAAP. The 1988 reconciliation bill even barred large farms from using the cash method of accounting. Q- Wouldn't things look a lot different if we used GAAP—generally accepted accounting principles? A- For one thing GAAP would show that in some instances the Reagan administration deficits were lower than those of the Carter administration. According to New York Congressman Joseph DioGuardi, the cash basis deficit of President Carter’s last year (1980) totaled $93.5 billion, whereas the estimated GAAP deficit for that same year was a whopping $408.3 billion. Ronald Reagan took the heat, as the Congressman put it, for the rise in the cash basis deficit from $93.5 billion to $185.3 billion whereas under GAAP the deficit actually declined by almost $75 billion, from $408.3 billion to $333.4 billion. Mr. Carter’s total estimated GAAP deficits over the 1977-80 period were $56.5 billion higher than Mr. Reagan’s total for 1981-84.ÉA significant portion of Mr. Reagan’s cash-basis deficits were actually the liquidation of liabilities incurred by the Carter administration, but whose costs were not recorded at that time because of the cash-basis system. Q- It seems that President Reagan spent more on capital items whose cost should be amortized over a period of years than did his predecessor. Why isn’t this common knowledge? Where is everybody? A- Under accrual accounting—GAAP, which is used by the way, by all publicly-held companies; revenues and liabilities are put on the books as they are earned or incurred, rather than when the cash actually changes hands. A properly implemented capital budget would transform the budget process and officials would have a very much improved accounting, reporting, priority-setting and fiscal-policy tool. GAAP would provide a more accurate reflection of all government liabilities. Q- How does the cash-accounting work? A- Cash-basis accounting treats huge investment expenditures whose value is in the future as current expenses. It then disregards anticipated loan defaults, recording only net-losses on loans, ignores accounts receivable and accounts payable, provides no reserves for bad debt, treats the sale of assets as income and fails to depreciate capital assets entirely. Of course it is difficult and results are at best highly speculative when it comes to evaluating assets and calculating future liabilities. It is impossible to plan intelligently under a cash-basis system. Everything may look like it is in tip-top shape because future liabilities are ignored.
Q- In other words, it skews the picture. A- One accounting firm estimated by failing to use GAAP sixty percent of the true 1984 deficit was hidden because unfunded Social Security liabilities were excluded. Social Security is a perfect example. As young Americans pay into the system the government accrues stupendous liabilities against the day when they will retire and collect the promised benefits. This claim against future taxpayers, according to the Department of Treasury, passed the eleven trillion dollar mark back in 1987 five years ago. Q-I guess you can pull all sorts of shenanigans with accounting methods. A- Under the present federal government accounting system the forty billion in new loans that the federal agencies make each year are counted as outlays for that year. There are more than three hundred fifty federal loan programs of one sort or another. They are all laudable and flawless when enacted but overtime many are transformed by the need and greed of competing groups. Most of them do not show up on the budget as normal credit activity because many federal agencies can make, even direct loans so they are completely off budget. The millions of loans made by private lenders and guaranteed by the federal government represent a contingent liability and one more burden for future taxpayers. The federal government insures not only bank and thrift deposits (FDIC & FSLIC) but also private pension plans (PBGC). The federal government is the country’s largest insurer. It guarantees loans to home buyers, veterans, farmers, students, small business people and a multitude of other groups. Q- That means they would show up better on a capital budget. A- It has been suggested that such loan guarantees be redesigned to require current-cash outlays thereby putting the subsidy explicitly on budget. Better still the federal government should be directed to purchase private loan insurance for borrowers rather than guaranteeing loans itself, on behalf of all taxpayers. Best of all, the federal government should clear out of the loan business and leave it to the private sector. Q- Judging by default rates, the government hasn't been very selective lately anyway. A- There are many organizations that would step in to take care of those who would not qualify for commercial banks loans. Even now religious, cultural or work-related organizations offer free (no interest) or low interest loans to members or even act as guarantor. Borrowing by the government, however, is another matter. If the borrowing is to finance public investments it need not be a sign of trouble. Deficit financing is common and although many government investments may prove worthless, synthetic fuel as an example, most become assets,
like highways. Deficit financing shifts the cost of paying for highways to future taxpayers who benefit from the roads when they are completed and in use. Q- There doesn't seem to be much uniformity in the government's present system, at least as you describe it. I can see how reforms could make it possible for well-meaning officials to make informed decisions. A- There’s no doubt we need uniformity and more openness so that better informed choices can be made. Although Special Analysis D of the federal budget separates investment and operating outlays, it is only used as information, having no policy significance of its own. We have nonsense like oil and gas leases, categorized as offsetting receipts and treated as outlays instead of revenue. We can’t expect miracles from accounting and procedural changes in the law, but you’re right; changes would make costs more visible and thereby provide an opportunity for more effective management of federal budgeting. Q- I would think the government could at least make the switch from cash-basis accounting which seems to encourage deficit spending by underestimating the actual deficit. A- You're right again. As we have seen, cash-basis reporting and budgeting largely ignore depreciation, accounts payable and other long-term costs making it easier for officials to adopt programs that provide benefits up front without providing funding until years later when the appropriating official is long since gone. Q- Why didn't the Reagan administration push harder for the enactment of accrual accounting i.e. GAAP? A- Probably because no elected official is anxious to have American citizens, let alone the rest of the world, take a look at what would be at least a doubling of our debt in one fell swoop through a change in accounting methods. Q- I think we have had our fill of illusion and deception. A- Maybe the people who know about it want change but not necessarily the politicians that have the same knowledge. Senator John Danforth admitted publicly that the Senate in 1986 had been looking at phony numbers and knew it. Senator James Exon told his colleagues in March 1987 that “We knew last year’s numbers were phony...Let’s get honest with ourselves.” If honesty is what they’re after, you might think that the good Senators would be in favor of a capital budget but it’s not necessarily true. Senator Paul Simon joined with Senator Exon at the Budget Mark-Up Committee (March 1987) to vigorously denounce accrual accounting. Q- What were the objections?
A- Opponents argue that since the system is already prone to vast overspending, cash-basis budgets allow more control. If accrual accounting was adopted, the determination of whether outlays are placed on the capital or operating budget would be based on political considerations. Imagine, if you will, politicians falling over one another in an attempt to have their pet projects classified as capital outlays so they will not have to be paid for by current taxes and would not ostentatiously add to the deficit. Such a classification could mean the difference between acceptance or rejection of a program. One could easily argue that more spending on education is an investment in the future; that agricultural subsidies are a long-term investment in a way of life. Q- No one could deny that environmental issues fit the bill. A- A fool-proof process has thus far eluded us. Under cash-basis accounting no financial statements are available for citizens to judge the actions of officials and under accrual accounting an official may have been replaced by the time his deeds are discovered. But as Senator Paul Simon has said so often during the 1988 presidential campaigns, I know we can do better than this! A- Bush's FY1992 Budget was presented on February 4, 1991 and was greeted more favorably than any budget in recent memory although it called for a 2.6 percent increase over the FY1991 budget and showed no serious intentions to curb federal spending. It included twenty-two billion in new spending for social service programs over five years. It slated two hundred fifty programs for an increase of $17.8 billion, a hundred nine programs for a decrease of $8.3 billion and expressed an interest in terminating two hundred thirty-eight programs along with their thirty-five hundred ninety-one specific projects for a savings of $4.6 billion. Q- I hope some of the programs to be terminated are related to the Pentagon. A- When President Bush was asked about a peace dividend in February, 1991 at an appearance before the Economic Club of New York, he said, “I thought dividends were given when there were profits. We have a deficit of over three hundred billion.” As to his new world order, he described it as a revitalized U.N. with tougher peace keeping functions. He explained that the use of the veto by the Soviets in the past has been one reason the peace keeping functions have been so impotent. Q- Yes, but that is changed now. A- Getting back to the administration's FY1992 budget proposal. Mr. Darman, a key architect of the proposal, wanted to see another fifteen billion worth of programs turned over to the states. The ranking Republican on the Senate Budget Committee, Senator Pete Domenici of New Mexico, concurred. He thought the states would find more innovative and efficient ways of administering a lot of the programs.
Q-I bet the governors loved that! A-Acceptance by Governors is not the problem; it is Congress and its reluctance to relinquish control over the purse strings. Governors say that Medicaid took ten percent of state budgets in 1985, fourteen percent in 1990 and will take seventeen percent by 1995. Eighty-five percent of all new state money is dedicated to federal mandates leaving the governors with discretion over only fifteen percent of their own state’s budgets. Q- I've heard economists worry that the shortfall in state and local revenues will add to the federal deficit. How is that possible? A- Because states and local governments must balance their budgets they will likely increase their own income and property taxes. These taxes are deducted from federal taxes and so will further decrease federal revenue. Supply-siders have always said that income expand fastest where least taxed. This is borne out by the figures that show earnings above the Social Security tax cap are growing more rapidly than below. Q- Of course you're hearing more and more people expressing a desire to lift the cap entirely and make a hundred percent of everyone's income subject to the payroll tax. A- That ranks right up there in the category of wrongheaded actions along with talk to disallow the deduction of state and local taxes from federal filings. Q- Did the FY1992 budget include an increase for education? A- Some, and how much depends on how you view the figures. Senator Paul Simon was quick to point out that $1.6 billion of the $2.7 billion increase in the education budget guarantees state loans. But nevertheless the education budget went from $24.8 billion in FY1991 to $27.5 billion in the FY1992 proposal an increase above the rate of inflation. Rather than focusing on education per se, Mr. Darman made a point of referring to children's programs. The budget included eighty-seven billion for children's programs—a 9.5 percent increase, which included $2.1 billion for Head Start, $732 million for child care, $690 million specified "for education" with $200 million of that for an incentive fund to encourage choice—especially Chapter One. Q- How did the Senators from the farm belt accept the cuts in agriculture subsidies? A-Surprisingly neither Senator Grassley of Iowa nor Senator Exon of Nebraska were adverse to the recommendations to cap farm subsidies. Q-I understand one of the largest increases in the budget was for the administration of Congress. A- Absolutely correct. The Congressional leaders asked for a twenty-eight percent increase in their legislative budget or five hundred million more than last year. The executive branch has only a ministerial role, with no discretion over the funds slated for Congress.
Nevertheless Mr. Darman gave a courtesy phone call to the leaders and asked if the Congress wished to go on record in this time of belt-tightening and sacrifices, as appropriating a twentyeight percent increase for themselves. He reminded them the rest of the budget was only getting a 2.6 percent hike. They trimmed the request to a twenty percent increase. Q- Did you know that eight-one staff members were making more than Senators before the Senate voted itself a pay raise in the summer of 1991? A- Did you know that members of Congress gave away two hundred forty flags in 1950 and one hundred fourteen thousand one hundred and fifty-one flags in 1988? Little things like that add to the Congressional budgets just as staff salaries do. As for the forty-six senators who opposed the twenty-three thousand dollar pay raise, only ten had definite plans to return it to the treasury or donate it to charity. Q- Do you think it is hypocritical for the others who voted against the pay hike to now accept it? A- Not at all. I figure if an official puts the country's interests before his own but doesn't succeed in getting the legislation that he would willing live with, that is all I would expect. The law applies to everyone. I doubt the motives of those who ostentatiously go above and beyond the call of the duty. I think the comparison to martyrs and saints is, generally speaking, a calculated move, likely somehow, to find its way to the media's ear come election time. Q- Did the war in the Gulf help Secretary of Defense Dick Cheney get the authorizations he wanted? A- There was some discussion about the $4.6 billion requested for SDI. $5.3 billion was requested last year and the administration only received about $3 billion, otherwise the discussion centered on burden sharing by other countries and their contributions to the Gulf War. Senator Paul Simon insisted that it is not wise to have a war we don't pay for—a war where we pass costs on to our children. He felt that troops shouldn't be the only Americans to sacrifice over Desert Storm. He made a definite plea for new taxes although the T word was never actually mentioned. In the same vein he thought it was terrible that Medicare made up only ten percent of the total budget outlay and was being asked to take forty percent of the cuts in Bush's FY1992 proposed budget. Senator Simon then went on with a litany of needs/desires. Senator Gramm of Texas ridiculed Senator Simon's “appetite to see taxpayers sacrifice” and asked why we don't reduce spending to compensate for Desert Storm instead of considering new taxes. Q-What was the most popular aspect of the proposed budget? A-Both Senator Gramm and Senator Wirth liked the seventy-six billion for research and development, which was, by the way, a thirty-four percent increase amounting to an additional 8.4 billion. Senator Wirth wanted more money for energy conservation which he said was cut by
one third in the new budget—he said it was foolish to think we can keep on producing our way out of our energy problems. Mr. Darman assured Senator Wirth he could count on the thirty-four percent increase in R&D (research and development) in the budget with a lot of it directed towards energy. It encouraged investment in high speed rail or mag-lev, better batteries for electric cars and so forth. Thirteen billion of the R & D budget was for basic research. Applied civilian R&D has lagged but Mr. Darman insisted he was not getting us into an industrial policy. The Texas Senator also favored the idea of not subsidizing people who make over one hundred twenty-five thousand dollars. Q- What about HUD—the Department of Housing and Urban Development? Did they get enough funds to finance the costly Cranston-D'Amato bill which was to provide affordable housing to the nation? A- That didn't happen because HUD's budget was frozen at $2.4 billion until September of 1992. HUD received in the FY1992 authorizations, four billion over the previous year including salary and expenses of eight hundred twenty-five million. Q- But not enough funds to allocate to NAHA; the Cranston-D'Amato bill. A- Don't you start giving me that never enough line. As I said earlier, senators on the FY1992 budget committee praised it for its relatively honest numbers and good faith. Mr. Darman pointed to a thirty year trend where the growth has been in mandatory programs which now account for 52 percent of the budget. Q- What do you mean by mandatory? A- When pressed to define mandatory programs, Mr. Darman told senators the new term refers to automatic spending not subject to annual appropriations and consists mainly of direct spending; generally payments to individuals. Q- That sounds like entitlements to me. A- Right. An entitlement, by any other name, is just as expensive. Mr. Darman showed with charts, the dispersal of all revenue after money has been taken out for defense and interest expenses. Another set of charts showed how core spending (what the founding fathers would have considered to be the legitimate role of government) stayed level over thirty years—how long term investments like spending on infrastructure, capital, (both physical and human capital) and prevention programs all declined while short term investment, like transfer payments or current consumption increased. The Bush Administration made a conscious effort to slant the FY 1992 budget towards long term investments. Q- I'm convinced we've got a problem with government controlling too much of the nation's resources. Now what? I'm not one that's convinced that recognizing the problem is half the solution. What constructive ideas do you have?
A- Besides working for a balanced budget amendment, which we've discussed, I'd work hard at cutting spending, and begin by freezing all expenditures at current levels in real dollars. With the exception of debt service, of course. Q- You mean no more colas—cost of living adjustments? A- That's right. If that's too simple and leaves politicians with nothing to do, they could cut twenty-five percent from each department's budget and return it to a general pool for reallocation according to shifting priorities and emergency demands. Q- I hope one of those priorities would be reducing the cost of carrying the debt—an annual cost nearing the three hundred billion mark. A- Anyone outside the beltway can readily see that turning off the interest cost spigot would be the best way to get dollars that are needed in other areas. Cutting spending goes hand in hand with cutting government's control over our lives, and that is what I really want to get at. Next I would look for alternatives to the present way we do things. Contracting-out almost always results in better service at lower costs but does not automatically guarantee lower taxes or smaller government. Politicians are famous for earmarking savings for new programs and ever expanding needs. Q- Maybe tax limits and program-spending ceilings could be imposed on all levels of government. Otherwise what's to prevent groups from lobbying even private providers? A- What's wrong with lobbying—just as long as it's not bribery? I understand that there has to be a well thought out bidding process and that a concerted effort should be made to distribute tax dollars as widely as possible to minimize the influence lobbyists could have in encouraging increased spending on programs from which they could benefit. Q- Couldn't the tax code and deregulation be used as an incentive to induce private bidders to provide the services formerly offered by government? A- The problem is not only efficiency, but whether government should be undertaking the broad range of services it now provides via tax dollars in the first place. The question I would like to see asked initially is whether this is government's role, and then if it is, consideration should be given to ways to have the private sector provide the service. Smaller government, free markets and greater choices are important goals to foster, and coincidentally, they are almost inevitably more efficient if government can be made to show the true cost. Q- What's the difference between contracting out and privatizing? A- When the government pays but the service is provided by the private sector, it is called contracting out. When government neither pays nor provides, but only regulates, oversees, or stays completely out of the picture (which is highly unlikely today) then we have a privatized system.
Q-What about selling government assets to the private sector? A- That's staying completely out of the picture and is an example of privatizing. It's not a new idea. In fact we have a long and successful history of privatization to reduce debt. To retire the debt accumulated from the Revolutionary War and the War of 1812, Treasury Secretary Albert Gallatin devised a plan. A sinking fund was started in 1817 to retire the debt through land and other asset sales. By 1835 the entire federal debt had been paid off. Q- What's a sinking fund? A- The term simply refers to assets and their earnings which are earmarked for the retirement of bonds or other long-term obligations In 1986, the Office of Management and Budget, headed by James Miller III, proposed eliminating the federal deficit by selling major federal dams and power systems, privatizing the postal system, the FHA and other functions that government does not do well and has no business performing in the first place. Forgetting the deficit and even putting aside ideology for a minute, the sale of federal assets makes sense because these assets require subsidies which drain taxpayers. Additionally government-owned and subsidized entities end up competing against unsubsidized private citizens. When opponents suggest that privatization is selling our legacy they should remember that they are referring to not only the blessings, but also the burdens of public ownership. Q- What do you think about privatizing the Naval Petroleum Reserves, which consist of oil fields in Elk Hills, California and Teapot Dome, Wyoming? A- I think it’s feasible. The oil produced there is currently sold to private buyers for half the actual market price. The government doesn't need it as there is already emergency oil stored in the salt domes in the Gulf Coast. If the oil had been sold for its true worth on the open market it would have reduced our national debt and saved some interest expense over the years. Q- The Carter administration suggested selling the four federal weather satellites, an idea which was picked up by the Reagan Administration. A- But congress stood in the way. Taxpayers spend a billion dollars to gather, analyze and disseminate weather information every year; information that is freely given to media customers like newspapers, radio and TV stations who retail it to the public. COMSTAT (Communications Satellite Corp.), a federally chartered, stockholder-owned company, offered to purchase the weather satellites along with Landsat, remote-sensing satellites that produce photos of crop and geological formations. The government would buy data under prearranged prices.
The taxpayers would have benefited first because money would have been saved by the efficiencies of consolidating the ground-sensing and weather stations and developing dualpurpose satellites; secondly by shedding the hundred fifty million annual it cost government to operate the satellites and third, having a tax-paying private company provide the one billion needed for technological improvements. Any sale would have provided for priority use by the Defense Department. To further counter any argument that the Pentagon needed access, the Navy was already using COMSTAT satellites. As for those who claimed the sale to COMSTAT would create a monopoly, already numerous companies are competing in satellite communications. There would be several competitors in the space launch field if government would only step aside. Q- I think competition in all areas is healthy. A- An example I love is the prediction of a New York City snowstorm in 1987 by AccuWeather, Inc. of State College, Pennsylvania. Using the same data as the National Weather Service, the private firm predicted the storm four days in advance and saved its client, New York City's Sanitation Department, thousands of dollars, while the National Weather Service scoffed at the prediction. This experience should make us wonder why we need a government service? I agree with you that competition is always beneficial. Q- I suppose you have examples in other areas? A- At Human Resource Associates in Hastings, Minnesota, emotionally disturbed teenagers are treated at home rather than at residential centers. The costs are half those of publicly operated residential centers and the percentage of teenagers ending up in trouble again is less than half the rate of public programs. In late 1986, Congress voted to lease the two airports servicing the nation's capitol to a regional authority formed by the State of Virginia for forty-seven million to be paid over fifty years. This despite offers of two billion by private groups to purchase the airports outright. The lease simply transferred the burden from one set of taxpayers to another—and for what reason? Virginia's taxpayers had to come up with seven hundred million in needed improvements and what did they get for it? When attempts were made to privatize FHA the Mortgage Bankers Association lobbied against the idea because that government agency was willing to take insurer risks that the private sector was anxious to avoid. Q- Why rock the boat and wreck a good thing? A- Right! FHA was continued as a responsibility of taxpayers despite evidence of fraud. Q- What fraud?
A- For example the issuance of loans to people whose incomes were too low to qualify for insurance from private mortgage companies. Q- Didn't Senator Moynihan suggest selling some government assets awhile ago? A- You're right. Senator Moynihan wanted the federal government to sell off its nearly one trillion loan portfolio, which he estimated would save taxpayers about two hundred billion over a seven year period, when the avoidance of future debt service was considered. The sale would have drawn attention to the mismanagement of all government lending programs, showing more clearly the extent of taxpayer subsidies hidden in many loans. As a side benefit, privatization would have removed government as a competitor with the private sector. Amazingly, the Senator, a Democrat, was voted down by a Republican controlled Senate budget committee. Their excuse; loan sales would postpone the day of reckoning! Q- I know about home mortgages and student loans but other than that I didn't know the federal government was so heavily in the loan market. A- There are over three hundred fifty federal loan programs which are subsidized by taxpayers via low interest rates and long repayment periods not to mention the cost of defaults. Q- Somebody told me that twenty-five percent of the American population, mostly in northwestern states, get cheap power subsidized by the other seventy-five percent of the population. A- That was in reference to PMAs—Power Marketing Administrations—government power plants, first started during the New Deal with the Tennessee Valley Authority and the Bonneville Power Administration in the Pacific Northwest. Rural electrification programs (REAs) began as unemployment relief in the Depression, when very few farms had electricity. By the 1960s virtually all farms had electricity and that should have been the end of the subsidies. Q- I suppose it's not that easy to break up a thirty year old bureaucracy. A- Right you are. REAs took on the mission of granting low-interest loans for the construction of new generating-plants. Of course as market interest rates soared in the seventies demand for REA lending rose by seven hundred sixty percent. Q-Surprise, surprise! A- The REAs loaned out close to ten billion in tax money and collected only $5.2 billion in principal and interest during the seventies. Q- Who did they lend the money to and why did they need subsidized loans? A- The borrowers were smart business people who knew a good deal when they saw one. Maybe they didn't need the subsidized interest rates any more than the next guy, but if the REA managed to keep itself on the taxpayer dole by handing out such nifty loans, anyone who knew
about them would have to be stupid to pass up the opportunity. Co-ops were formed which were in better financial shape than were private-sector municipal or privately owned utilities that had to make do with unsubsidized loans. Q- Of course those responsible for giving wrong signals and distorting the marketplace are the first to cry that the free market doesn't work. A- Not only that; we've got the familiar problem of government not following its own mandates. One study found the TVA in compliance with EPA pollution standards at only sixteen percent of its facilities, compared to about seventy-four percent compliance among privately owned electric utilities. There are now six PMAs that operate one hundred seventy-four hydroelectric plants. The power generated by these plants is priced, on average, one-third less than what private-power companies must charge. Q- That doesn't make sense when the government is so short of funds. A- Worse than that, the PMAs were, by law, supposed to repay the cost of their facilities and investments to the U.S. Treasury within fifty years of being established. Q- You mean they are charging far less than market rates despite owing the Treasury money? A- Five of the PMAs have repaid almost twenty percent of the sixteen billion lent them by the federal government. The sixth, PMA, Bonneville, instead of paying one billion as scheduled, came up with only two million and then in 1985 borrowed an additional three hundred ninetyfour million from federal taxpayers. Q- Uncle Sam is quite a lender. If a borrower fails to keep its commitment—paying only two million and reneging on the other nine hundred ninety-eight million—what's Uncle Lender to do? Why sure—just lend that borrower another three hundred ninety-four million! A- Experts estimate revenue of seventy billion from privatizing the PMAs and if the Tennessee Valley Authority were included the revenue could top one hundred billion. Q- Who or what could afford to buy them? A- One idea is to incorporate each PMA and offer shares on the stock market. That would get the federal government out of the business of producing electricity, where it had no business being in the first place. Besides we would get new revenue from the private corporations which would be subject to taxation where the government-owned and operated utilities were not. Q- Weren't privatization and deregulation hallmarks of the Reagan administration? A- That's right. In 1987 President Reagan formed a Commission of Privatization, chaired by University of Chicago Economics Professor David Linowes. The commission was to review all
federal activities and in six months recommend ways to eliminate unfair government competition. Q- That was keeping with the tradition of the 1983 Grace Commission which uncovered government waste. A- That's a good comparison. I bet if you asked the man-on-the-street what large government agency competes unfairly against preferred private-sector providers he would answer. . . Q- The post office! A- A fourteen-year old boy earned ten dollars an hour by delivering wedding invitations on his bike; a twenty-five year old started a citywide delivery service and had three hundred fifty-seven regular customers, mostly law firms; and a middle-aged man delivered messages to members of Congress at one-fourth the postal service cost and twice the speed. All were shut down for interfering with the legal monopoly of the post office. An inefficient taxpayer subsidized system is allowed to stay in business while an efficient taxpaying system is shut down. Q- Why? A- The three real-life people in my illustration were guilty of being more competent than government at serving the needs of the public. In 1845 private express statutes prohibited persons or businesses from carrying letters for hire. In 1860 the monopoly was extended and the law was tightened to get rid of the Pony Express and other private delivery alternatives that had wormed their way through loopholes in the original law. Q- Then United Parcel Service—UPS—came on the scene. A- When the postal service lost half its parcel volume to UPS it spent one billion on twenty-one centralized bulk-mail centers around the country in an attempt to defeat a private company. UPS survived because it incurs less damage, makes faster more reliable deliveries and charges less. It still makes a profit while the government service looses money. Q- And now the postal service is competing with your local florists. I just picked up a colored brochure at my local post office showing a variety of floral arrangements that can be sent as gifts just by calling their 800 number. A- I believe using public money to compete with private firms is absolutely no-holes barred wrong! Q- I have a hard time knowing why a monopoly needs to take out full page ads and advertise on television.
A- We've got to do something about this nonsense. Between 1981-85 postal employees won three billion in new wage concessions, stamp prices were raised twelve percent a year while the consumer price index was rising at a four percent rate. In 1986 postal employees became the highest paid semi-skilled workers in the history of the world and salaries accounted for eighty-four percent of the agency's twenty-six billion annual budget. In that same year, postal employees increased from seven hundred and two thousand to seven hundred and forty-six thousand, postage went from twenty cents to twenty-two cents and loses were two hundred fifty-one million. The next year postage went up another five cents to twentyseven cents in order to fund a new federal retirement program for postal workers costing one billion a year. Q- I heard recently that the top postal service brass took bonuses totaling twenty million while the agency was floundering in $1.5 billion debt and consequently was forced to raise postage rates on its employer—the American citizen. I understand that on average, postal service compensation is one-third higher than for comparable jobs in the private sector. A- I believe it. Postal Service janitors were making $10.89 an hour at a time when privately contracted janitors used in other federal-agency offices were making $4.44 an hour. Why? Unions hold the threat of slowing down the mail. Generous wages are supposed to ensure efficiency. Q- So why aren't citizens clamoring for privatizing the post office? A- In a way they are. You thought of the post office right off as a perfect candidate for privatization. But there is strong opposition aside from the three-quarters of a million employees themselves. Also opponents believe that if the system were privatized, rural routes would receive reduced service. Q- Those are discredited fears. Rural services were served just fine by the new providers that emerged in the wake or airline and trucking deregulation. Telephone service, and truck and bus lines, before deregulation, were all cartelized for reasons now given in defense of the postal monopoly. A- If we started with the rural areas maybe that would dispel old fears. Rural carrier routes could be put out to bid over a period of years as a first step. Later processing, delivery and retail functions could slowly be contracted out. Privatizing rural delivery and nothing else could save six billion a year. Q- I'll bet members of Congress have prevented legislation to privatize the post office. A- You're absolutely right. Representative Phil Crane from Illinois has tried for years to make private mail delivery legal, with no success. Citizens for a Sound Economy figures one billion could be saved annually just from contracting-out retail functions such as stamp sales and
window services; allowing nonprofit groups to deliver their own mail; giving utility companies the authority to use mail boxes for on-the-spot billing which would save money on utility bills; contracting-out rural and urban delivery routes and turning over the processing and pre-sorting of mail to private contractors. The Heritage Foundation has suggested breaking up the system into private companies on a regional basis and Milton Friedman has suggested giving each citizen one or more shares of stock in a new private corporation. He says, “It should not be a federal crime to provide better service than the government.” Q- Let me get this straight now. We've been talking about privatization—what about examples of contracting out? A- Vance Air Force Base in Oklahoma is a prime example of what contracting out is all about. In the mid eighties about a thousand employees from Northrop Aircraft Service did what took twice the number of military and other government workers to do on other bases. The secret lies in using multi-skilled workers. At the warehouse, the same employee mops the floor, stocks the shelves and delivers supplies. Two employees do carpentry, painting, electrical and mechanical work which would normally be designated to an entire team of specialists. The Northrop employees perform seventeen services at a cost twenty-two percent below costs at similar bases. Vance was a successful 1960 experiment which should have been immediately duplicated throughout the government. The opportunities for savings and efficiencies that have been missed in over thirty years is appalling. Q- I've heard this bidding thing is tricky and not always a straight forward comparison between a private sector bid and a government bid. A- You're right. For instance, at Fort. Sheridan, Illinois, competition for audio visual services resulted in a $3.5 million in-house bid and $1.8 million from a private contractor. The government then began adding new costs, such as excessive severance pay, to the private bid, while underestimating in-house costs of supplies until Fort. Sheridan was able to declare itself the winner. The following are common manipulations to frustrate the intent of A-76: Q- There you go again—what in the heck is A-76? A- In 1955 President Eisenhower endorsed contracting-out, in a directive known as A-76. It directed federal agencies to contract everything that can be procured more economically from a commercial source. Ronald Reagan revived A-76 when he became president. Q- I can see why government employees would want to thwart A-76—it puts their jobs in jeopardy—but how do they do it? A- Thwarting? I'll give you a few examples: a private contractor must allocate full overhead costs in a bid, while government agency estimates usually include minimal overhead costs;
a private contractor must include the full cost of Social Security, retirement and unemployment in bids, while government agencies routinely understate civil-service retirement costs; and most importantly, under current interpretation of A-76 regulations, private contractors must demonstrate that they can do a job a minimum of 10 percent cheaper than the government agency can before a contract can be awarded. Q- That means any potential savings less than ten percent are lost. It seems backwards—like guilty until proven innocent. A- Absolutely! Government should not even be competing against the private sector; that is the intent of A-76. Using the private sector represents the least possible distortion of the economy, stimulates private investment, creates jobs and generates tax revenue. The agencies, not the private sector, should have to prove they can do these commercial jobs ten percent cheaper! A GAO (government accounting office) study in the eighties showed it costs the GSA (general services administration) at least fifty percent more to clean offices using its own custodians than using outside contractors. The tab was almost twice as high as private-sector landlords pay to have their federally leased space cleaned. But when GSA tried to hire private custodians, guards, elevator operators and messengers in some of its buildings certain Congressmen went crazy and Senator Dale Bumpers of Arkansas even pushed through a ban on studies. Q- I never thought much about it before but I bet there are lots of areas where government competes against private entrepreneurs. A- Just ask me! Scuba and skin-diving instruction, whale-watching cruise, charter sport fishing trips (a boat was refurbished with eighty thousand dollars of military funds) were all offered for sale to all comers at the Camp Pendleton Marine Corps Base in Southern California. Private companies offering similar services in the area suffered. The U.S. Forest Service operates thirteen nurseries nationwide, producing one hundred fifty million tree seedlings a year for reforestation. Add state and local government nurseries and the seedlings double to three hundred million a year. Why can't this service be privatized as directed by A-76? The American Association of Nurserymen has not been a large enough lobby but this private sector needs relief. The federal government is also in the grocery business. Two hundred forty-seven domestic and one hundred overseas military-linked stores use one billion of taxpayer subsidies a year. Someone figured the taxpayer subsidy to each commissary shopper at about two hundred fortyfour dollars a year and suggested salaries be raised by that amount and the commissaries be closed. Some of the commissaries exist to serve military retirees. Commissaries may have been necessary when bases were located far from any commercial centers, but that is seldom, if ever the case today. For instance there are six commissaries in the D.C. area competing with one hundred major private-sector grocery outlets.
To overcome resistance from government employees to attempts to contract out, in 1986 Constance Horner, then director of the Office of Personnel Management, came up with a plan called Fed Co-Op. The idea was to move government services, like agency cafeterias, data processing, maintenance and so forth into the private sector under joint-venture arrangements with private businesses. The federal employees would keep their present jobs, with the same salaries and benefits and also get an ownership percentage in the private companies. These private firms would have the exclusive contract for three years and would, at the end of that time, have to compete with other private sector firms for the government contracts. Q-That should have won the old employees over. A-There's no doubt in my mind that many federal service employees perform vital functions with serious consequences for the nation but drastically limiting the size of government would do wonders for our economy. Q- And many former government employees could do wonders for themselves and the nation if freed from excessive restrictions and regulations. A- In July 1991 the Senate Judiciary Committee issued a report recommending a constitutional amendment to compel a balanced budget. Senator Biden wrote, “The spree of deficit spending by our federal government must be curbed. We cannot continue to run staggering deficits year after year… Congress does not have the will to balance the budget.” There is no doubt in my mind that the spending will end only when we the people decide that it will end. So it's time for action—time to tell Congress that we've had enough. It is time to be responsible and take charge of our own destinies and live up to the intentions of the self-reliant people who founded this nation.
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