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In working out and administering the budget, the Budget Bureau decided that the appropriation allows for a certain amount of expenditure.

It gives the agency the authority to spend something less than this in setting up its original plan; it is so to speak, holding back part of the authority until they know more about developments.

Class A and class B has perhaps an unfortunate pejorative note. So my plan essentially can be described in these holdback terms.

The Appropriations Committee might very well enact a relatively higher expenditure ceiling with a certain portion of this specfically held back.

It would be a later decision of the Congress to set a total expenditure limit and the holdbacks are, so to speak, the things that are cut.

This retains the authority of the Appropriations Committee to in effect decide what kinds of things should or should not be impounded.

I think that there are at least general precedents for the kind of thing that I am suggesting.

Since I used the strategic-tactical analogy from the military, I think it useful to comment that one characteristic of a good military order is that it be precise as to the minimum that is to be done and thus precise as to the range of discretionary action which is left to the judgment of the officer in the tactical situation.

Closer to home, what I am suggesting is very analogous to the holdback practice of the OMB in administration of budget funds.

The essence of holdback is that a minimum expenditure rate is established and the decision to spend more is left on a contingent basis to be decided in the light of future circumstances.

I think it is an advantage of the approach I am proposing that it makes maximum use of the present Appropriations Committee structure.

There may be a value in creating a new supercommittee on the budget, but it is common experience that new committees create many coordinating problems.

Under the technique that I have outlined, it would be quite feasible for a new committee to take the responsibility for setting and, as necessary, modifying the actual expenditure total, the A and B classifications.

The decisions on where cuts should come in specific programs could be left to the committees most expert in the areas.

A final general point that I would make is that these matters are complicated. The essence of my hang loose principle is that spending plans must deal with uncertainty. You should explore in detail any program that you come up with.

At this point, I suggest only a few complications that come readily to mind. Subject to a decision to hold total expenditures to some figure such as the $270 billion in my example, it would be possible to permit the Appropriations Committees to revise their priorities so as to transfer spending authority in a fixed total between appropriation accounts.

Supplementals could be handled in the following way: First, the decision could be made as to whether to handle supplementals by raising the expenditure ceiling; if it was decided not to do this, the Appropriations Committee would have to accommodate supplementals by transferring the spending authority from other accounts.

I have not tried to be specific about the detail with which expenditure ceilings should be specified. This comes down to deciding how much authority you want to leave to agencies to transfer expenditure authority between programs.

It might be useful to comment a bit more specifically on the way my testimony relates to the tentative recommendations of pages 2-4 of your Interim Report.

(A) In 1(c), you really should strike the words "debt levels," because revenue, expenditure, and debt are all interconnected.

If you fix the tax law, then revenue will depend on the GNP. If you also fix the expenditure, then the debt level is practically fixed.

If you fix the debt level, too, then a variety of things will become inconsistent if the revenue forecast is wrong, that is, if the GNP is less than expected. This only messes things up.

(B) I have doubts about the first paragraphs of both (3) and (4) which contemplate having the supercommittee tell the Appropriations Committees early in the session what they should do.

Organizationally, this seems to be a source of conflict and really the Appropriations Committee knows more about it.

My suggesition is to let the early decisions be made more freely but in this two-stage manner in which cutbacks can be later applied.

I offer my alternative tentatively, and compromises are possible.

For example, the initial action specified in (3) of your tentative recommendations could be limited to ceilings on class A expenditure authority, with more leeway for the Appropriations Committees to create class B authorities recognizing that eventually the total of these will have to be cut back to fit the cloth.

In summary, I think it is useful to think in terms of this distinction between strategic and tactical decisions.

This terminology emphasized that the Congress can never do the whole tactical job.

Good strategic planning does, however, involve specifying limits, or alternatives, or maxima and minima for tactical discretion. This you can do.

This job is not easy as the history of bad military planning attests.

A good start on the job would be to stop enacting these silly debt limit bills and devote real resources to seeing how you can deal with the uncertainties in the problem of expenditure scheduling. i

Senator ROTH. I want to thank you for your very valuable statement and innovative suggestions.

The hour is late, but I do have two brief questions I would like to ask you.

I was interested in your earlier comments equating the debt ceiling as an expenditure ceiling.

You may recall that last October we increased the debt ceiling to a level that would permit $250 billion in spending during the current fiscal year. It seems to me that whether Congress intended to or not, it has established this level, and has laid the foundation on which the President has based his impoundment of funds which, if spent, would exceed that debt limitation.

Mr. BRANNOx. That is right and that $250 billion depends on Treasury revenue estimates which are not perfect.

It turned out we had fairly good business conditions so that the tax receipts have been coming in quite favorably compared to our estimates.

If the receipts had been lower than our estimate Congress might have been surprised to find out they had enacted a $245 billion ceiling.

Senator Roth. Do you feel that we ought to take some steps to determine how the revenue should be raised at the same time we provide for some expenditure control?

I don't believe you addressed yourself to that part of the problem in your prepared statement. I wonder what your thinking on that point is.

Mr. BRANNON. Certainly you do have to look at these things together. I think there is much merit in the kind of proposal that Senator Williams made, although I would be inclined to say that this connection between the expenditures and revenues should be related to the full employment budget rather than to the actual budget in a period in which we have considerable unemployment.

It is understandable that there would be a current Government deficit in the same way that a family expects to have some deficit in the short-term period when the income is less than the regular income.

In addition to that, it does seem to me that one might very well expect the Congress to operate a little more flexibly.

In particular times it would make sense, in the face of full employment and inflationary conditions, to have a Government surplus.

In other times in the face of severe recession tendencies I think a deficit somewhat larger than this automatic deficit under a full employment balanced budget might be advisable.

So I guess I would say this is a hard problem. I would think that the Congress would have to give very serious thought to it in making its decision on the size of the expenditure limit. I don't have any suggestions as to how to make it any easier.

It seems to me you have to analyze a lot of alternatives and then make the decisions.

Senator Roth. Thank you.
Senator Fannin.
Senator FANNIN. Thank you, Mr. Chairman.

Professor Brannon, certainly we have food for thought throughout your statement. You have some unique ideas.

I do say that the powers to spend and to tax are inseparable, as Senator Williams covered.

I am concerned about what we would do if we had a minimum and maximum because it seems we are always going to maximum.

In State budgets, and I had the privilege of serving as a Governor, we had a budget that had to be within the limitations of our revenue.

That is very difficult, they say, as far as the Federal Government is concerned, so we come up with full employment budgets and programs to take care of the problems we have in Federal matters that we don't have in State matters.

But I am wondering if we could not have progress reports to a greater extent. This is what we do in the State government.

Otherwise, we have a tendency for departments to arrive at the 11th month and find they have maybe one-third of their budget remaining,

So they start in trying to determine how they are going to spend

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that money to justify the amount for the next year. Do you feel your procedure would help in that respect?

Mr. BRANNON. Senator, I suggest that you have an area where you can get some very relevant experience on this. The kind of thing I am talking about is what the Office of Management and Budget has been doing for many years and you could ask the Office of Management and Budget to tell you about how it operates its holdback practices and what has been held back.

Senator FANNIN. I understand that. We have the agencies, the OMB, and the like.

Mr. BRANNON. You see, OMB is in a very special position of decid

are focusing on here.

I guess another point I would make

Senator FANNIN. That is the controversy, whether or not they are exercising the priorities that Congress desires.

Mr. BRANNON. In a sense what I want to do by talking about maximum and minimum is get the Congress to go on record as to what the priorities are. If you want 270 to be the ceiling, you should be able to tell where the budget cutbacks are made.

That is why I suggest that you try to preprogram the flexible areas into each of the appropriation bills.

Senator FANNIN. Professor Brannon, we are very appreciative of your testimony. I am sure we will benefit by the testimony that you have given. Mr. BRANNON. Thank you.

Senator FANNIN (presiding]. The hearing will stand in recess until 10 o'clock tomorrow morning.

[Whereupon, at 12:50 p.m., the hearing was adjourned.]




Washington, D.C. The Joint Committee met, pursuant to notice at 10 a.m., in room 2359, the Rayburn Building, Hon. Al Ullman and Jamie L. Whitten, presiding.

Present: Representatives Ullman (presiding), Whitten (presiding), Schneebeli, and James Broyhill; Senators Bennett and Fannin.

Chairman WHITTEN. Gentlemen, the committee will come to order.

We are pleased to have with us as the lead witness today Senator George McGovern of South Dakota, well-known for his activities in the U.S. Senate and prior to that in the House. He is well-known to the people of the Nation.

Your interest in the U.S. Government is appreciated on the part of this committee. We also want to say we appreciate your taking time to come over and give us the benefit of your experience and counsel in this area. We are pleased to welcome you here and pleased to have your views.

As you know the Interim Report was agreed upon by the 32 members of the Joint Study Committee.

We have an excellent staff and we limited ourselves largely to describing the problem and suggesting tentative recommendations. Now we must develop a definite plan of budgetary control which will be agreeable to all involved.

With your broad experience in government and knowledge of these problems, you honor us by coming and giving us your counsel. STATEMENT OF HON. GEORGE MCGOVERN, A U.S. SENATOR FROM

THE STATE OF SOUTH DAKOTA Senator McGovERN. Many thanks, Mr. Chairman.

I want to say first of all I have been enormously impressed by the work of this committee. I think the Interim Report that you published with the unanimous endorsement of the members of this committee is one of the most fine and valuable and constructive documents that it ever has been my privilege to read, and I commend all of you for a superb piece of work.

Your committee deals with what I believe to be the dominant issues before this session of Congress. The constitutional "power of the purse”-in the last analysis the nucleus of all congressional authorityhas been stripped away.

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