one of the most able groups as we have had on any one committ I have been here.

It is a pleasure for me to serve with my colleague from who initiated this resolution. I believe there is general ag that it is highly imperative this committee come up with a workable budget control plan.

We have a Nation where the three important branches of ment must recognize the authority and limitations of the other we all fall.

To add to the statement made by my Cochairman, Mr. Ull Oregon, I think in our preliminary report we have done son that is important to all of us. We have managed to bring t how we got this way and what the problems are.

We have a rather fine statement, I think, as to present con and various ways in which the Congress commits itself to gations and expenditures by the Government in various s actions without any means to exercise effective overall contr day we are beginning the public hearings to hear from my coll Dr. Burns and others as to their suggestions. I know they helpful to us in formulating a plan to get a handle on the of balancing revenues and expenditures.

If we don't, this contest between the other branches of th ernment and the Congress will continue and, in my own p opinion, that is not good. For our Government to work there n respect by each of the three branches, not only of the powe authority, but of the limitations of the other branches.

I look forward to this opportunity to hear our friends an them give us the benefit of their advice and counsel.

Thank you.

Chairman ULLMAN. Thank you, Congresman Whittten.

I would like to acknowledge the presence of some of the m of the committee.

We are extremely pleased that Senator Russell Long and S Fulbright, both chairmen of very important committees in th ate are here. Senator Bennett also from Senate Finance Com and Senator Young, from the Senate Appropriations Committ then at large Members from the Senate, Senator Proxmire and ator Roth, are all present here at these important initial hes In addition to my Cochairman and myself, we have Congre Sikes, Cederberg, Rhodes from the House Appropriations Co tee and Congresswoman Griffiths, Congressmen Schneebeli and tenkowski, all from the Ways and Means Committee. Congre James Broyhill and Glenn Davis at large from the House.

We are very privileged to have as our lead-off witness in hearings the very distinguished Chairman of the Board of Gov of the Federal Reserve Board, and a man who has the confide most of the Members of the Congress, with a distinguished of public service.

Dr. Burns, we are extremely pleased to have you here, and we like you to share your views with us on the challenge that face important committee.

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ATEMENT OF DR. ARTHUR BURNS, CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Dr. BURNS. Thank you, Mr. Chairman.

In a year when Congress is demonstrating a determination to re'm its procedures, your committee faces a challenge worthy of its ents. You have the opportunity to enable Congress to turn its wer of the purse into a truly effective instrument for stabilizing r economy. The fiscal policies of this Government-its total outs, the priorities they reflect, and their relationship to revenues— ir significantly on the lives of the people you represent. Income els, the cost of living, the balance of international payments, and en the quality of life in this country are directly and substantially ected by the Federal budget. If you can develop procedures that Il enable Members of Congress to vote on an overall fiscal policy at adequately reflects congressional priorities, you will revitalize presentative government in this country. I am pleased to have been ked to discuss these issues with you.

Thoughtful people everywhere are aware of the need for more efctive congressional review of the budget. A recent indication of this et is Senator Mansfield's statement on February 8, disclosing that ll the new Senators of the class of 1973" had written to him and to nator Scott urging that reform of the congressional budgetary ocess be given "top priority." In this letter 13 new Senators, from th political parties, fresh from election victories in States from aine to Idaho, unanimously and "wholeheartedly" agreed that Congress has the obligation to set priorities under which expendires are to be authorized by this Nation, and present procedures of e Congress do not in fact achieve that aim." They concluded with is perceptive comment: "The first step toward establishing priories has to be setting a ceiling on appropriations and expenditures. his must be done first, rather than last. Unless we do this, we are ot really budgeting at all."

Yet along with this awareness of the need for better budgetary produres, there is concern and even cynicism about the prospects for chieving them. We hear speculation that the President does not really elieve Congress will heed his call for a ceiling on expenditures but xpects, instead, the Congress to overspend and thus become responsile for a tax increase that would then be inevitable. Congress, by its wn actions, has lent some support to this pessimistic view. The early esponse of the House and Senate to the President's efforts to hold tlays for fiscal 1973 to $250 billion has been to pass bills requiring lease of some of the impounded funds. And the Ervin bill restrictng the authority to impound funds seems likely to pass the Senate pon. Thus, people are understandably concerned that Congress, in xercising its unquestioned right to determine priorities among naonal needs, may produce budget deficits that no one wants--not the resident, not the Congress, and not the people you represent. The problem is too acute to allow its solution to be frustrated by crimonious debate about who is to blame. Representative Mahon recgnized this in a challenging discussion of our budget problems in ation's Business last April. Let me quote a few key sentences from

his paper: "Who is to blame for this distressing record? The dent? The Congress? The American people? I think nearly us are. Large segments of the population tend to demand mo more Government services, and at the same time there is a d for lower taxes."

I believe the American people understand that Government ing, taxes, inflation, and interest rates are all interrelated. If the to favor more spending and lower taxes at the same time, it ma be because congressional procedures lead to votes on taxes and ing as though they were unrelated issues. Members are asked, in to cast a number of separate votes for or against cleaner air, against better schools, and for or against a host of other good Government can help to provide. A vote does not occur on the qu of whether expenditures for a particular category are desired st enough to raise taxes, or to cut back on another category. Until can be cast on such questions, we cannot be sure what answers generally would give.

At present, the decisionmaking process that results in a budget being presented by the administration has no counterp Congress. Instead, the decisions that determine the ultimate sha the budget are made by acting (or at times taking no action) on a number of separate measures-160 for fiscal 1973, as recently rep by your committee. Only after the results of these separate vot determined can we put the pieces together and discover what k budget has emerged. In this process, Members of Congress ha opportunity to express the wishes of their constituents on choices as what total expenditures should be, or whether more should be for housing or for education or health care. Choices of this type greater importance to the electorate as a whole than the single posals on which congressional votes actually occur.

Some of the choices that the 93d Congress will have to make c readily anticipated. The economy is expanding vigorously. W look forward to a good increase in physical output and further r tions in unemployment in 1973. Thus, there is no need at this sta the expansion for further fiscal stimulus and the administration therefore recommended that the budget be brought into balan full employment. Along with the new prosperity, however, we some old problems. Persistent inflation-albeit at a somewhat d ished pace is one of them, and the chronic deficit in our internat balance of payments is another.

The recent devaluation of the dollar, combined with the Smiths realignment, have now placed us on the road back toward equilib in our balance of payments. We cannot, however, take that imp ment for granted. Indeed, confidence in our economy will be stre ened if we set a firm and definite goal for the balance of paymen namely, to end the deficit within a period of 2 to 3 years. Andy devaluation will help in restoring payments equilibrium, it will add to upward pressures on our prices at a time when both dom and international considerations require a determined effort to re price stability. The level of Federal spending, and the way it is final will have an important bearing on our ability to solve these problems of inflation and international imbalance.

persi

Yet sizable deficits in the Federal budget continue to plague us. administration estimates that outlays, if held to $250 billion,

ceed revenues by $25 billion for fiscal 1973. And while the adminration has recommended that the budget be brought into a position full-employment balance for fiscal 1974, outlays are still scheduled rise another $19 billion and the unified budget deficit is expected be about $13 billion.

In addition to its implications for employment, price stability, id our international payments position, the budget is bound to leave 3 mark on interest rates. With credit demands strengthening because the marked advance in economic activity, interest rates have been oving up. Treasury financing requirements, stemming from large idget deficits, have added to the pressures on credit markets. So far e advance in interest rates has been mainly confined to short-term edit. But our chances of continuing to avoid significant increases in ng-term rates will depend heavily on whether Treasury demands for edit can be held at moderate levels.

It is clear to me that your committee fully realizes the pressing need › reestablish order in our Federal finances. The question is not whether must be done, but how. A solution requires a firm ceiling on expendiires or a tax increase, or some combination of the two. There are everal reasons, I believe, for choosing a curb on spending in preference > a tax increase.

First, Government expenditures-counting outlays by State and ocal governments as well as Federal-have been rising much faster nan our national production, so that an increasingly large fraction of he wealth that our citizens produce is being devoted to the support f Government. In 1929, total Government spending amounted to bout 10 percent of the dollar value of our national output. Since then he figure has risen to 20 percent in 1940, 30 percent in 1965, and 35 percent in 1972. It is time to call a halt.

Second, the expansion in Government outlays has not produced he kind of benefits the public has a right to expect. As Government ssumes wider responsibilities, it becomes increasingly apparent that ve must have a better system of controls to screen out low-priority programs and to insure that high-priority programs operate effiiently. The best way to get effective controls of that kind is for Conress to decide that one-third of our national output is quite enough for the tax collector.

Third, I have the impression that the American people feel that hey are already carrying a sufficiently heavy tax burden, and will strongly resist any increase. If that impression is correct, raising axes may not be a realistic alternative to a ceiling on spending.

In its Interim Report of February 7, your committee has sketched out a tentative plan to achieve better control over expenditures, as a part of an overall plan for reviewing tax and expenditure policies. You have already accomplished much in the short time your committee has been in existence, and I find your report most encouraging. Under this tentative plan, Congress would establish two overall spending ceilings early in the session. One would govern total outlays for the ensuing fiscal year, which stem in part from obligational authority previously enacted. The other would limit new obligational authority, which will form the basis for expenditures not only in the ensuing fiscal year but in later years as well. Each of these comprehensive ceilings would be accompanied by subceilings for major

categories of expenditures, so as to reflect congressional p and to assist in achieving compliance with the overall ceiling Your report notes that earlier experiments with rubbery have failed, and that procedures must therefore be develope sure reasonable compliance with the ceilings. Representative F proposal, House Resolution 17, which would amend the rules House to require a two-thirds vote for passage of any b would exceed the previously determined ceiling for the particul gory of expenditure, has much to commend it in my view, pl it is expanded to assure participation by the Senate in establish ceilings as your report contemplates.

Representative Reuss has suggested a somewhat different dure-namely, that the overall ceilings and subceilings esta early in the session be treated as tentative, so that appropriatio and other measures providing new obligational authority co passed as now by majority vote even though they breached th ings. Thus, the tentative ceilings would help to guide action o vidual spending measures, but adjustments would be made the session, in the form of a final budget statute. This proposa to achieve flexibility and an opportunity for late-session revi proposed by your report, without destroying the effectiveness ceilings established early in the session.

I recognize that it may be too much to expect the House and to agree early in the session, on the basis of limited informati ceilings for major categories of expenditures that could be over only by a two-thirds vote. It may therefore be necessary to re Representative Reuss has suggested, on action late in the sess set the overall ceilings and subceilings in their final form.

For the reasons I have mentioned, I would hope that whe tentative overall ceilings are exceeded, the late-session adjus would usually take the form of reduced spending authority than a tax increase. But there may be circumstances where Cor should consider accepting a higher deficit than originally co plated, or financing expenditure overruns by raising taxes. The tial point, to my mind, is that Congress should take one of these c deliberately, in full awareness of its consequences.

Moreover, if reliance is placed on a final budget statute for the n adjustments, special rules would seem to be required in order to a that such a measure is in fact brought to the floor and acted on. such as those which speed consideration of resolutions relati reorganization plans would seem to be useful in this connection.

As an alternative approach, you may wish to consider a proc by which Congress would adopt a joint resolution establishing of spending ceilings as early in the session as possible, but in no event than June 30. The resolution would set firm overall ceilings on o and new obligational authority for the coming year, and dire Executive to submit within 45 days a detailed budgetary plan for plying with these ceilings. The plan would take effect within 45 after its submission unless either House meanwhile passed a resol disapproving the plan. With reasonable cooperation between the utive and the Congress, which would of course include consult with the House and Senate budget committees proposed in your re such a procedure would assure that the ceilings were effective and