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mulating fiscal policy and is willing to approve some procedure that would make its own spending decisions more consistent with the fiscal policy Congress itself selects.

Thank you, Mr. Chairman.

Chairman WHITTEN. Doctor, we appreciate your presentation here. First, may I say I think there is an absolute necessity for the Congress as representatives of the people to get our finances into proper balance in the future.

The pressure to do that comes from many sources. On the other hand, we have many practical problems of meeting the great and diverse demands of the public, of setting priorities. We also have the problem, as I see it here, of giving appropriate representation in budgetary control to the various jurisdictions involved in Congress.

I mention that to point out that I think the approach here of having various members of the committees in Congress represented, gives us hope that we can work out these problems in the common interest and come out with an overall approach to this matter.

That is the reason we have asked you and other witnesses to appear. The composite of all the proposals gives us just about every idea we can think of.

Personally, I feel if some of my colleagues had to trigger a tax, that it would be a deterrent to passage of many of the new bills by the Congress. We will make a thorough study of your recommendations along with others because we hope to come out with something that will do the job and that we can pass.

Dr. NISKANEN. Mr. Chairman, I share the concern which has led this committee and many others to propose an outlay ceiling. I don't think that history suggests that a ceiling itself is workable.

The problem of the legislative budget in the 1947 through 1948 period suggests that one can't set a ceiling beforehand that Congress will then live up to after the fact.

I think the procedure of setting a guideline or target around which there will be tax changes to maintain the absolute size of the surplus is workable.

Chairman WHITTEN. I was one of those who served in the legislative budget effort between 1946 and 1950. You can't set a ceiling the minute you arrive in town and be able to support it because you haven't done the preliminary work that you need to do.

I know legislators aren't going to adopt a rigid ceiling that cannot be changed if circumstances change. It must be a target, subject to revision later in the session when all the facts are known.

I think you made fine suggestions in your proposal to the committee. I think it is a recognition of realities, if I may put it that way.

Senator BENNETT. I have one question. In practice wouldn't this require changing the taxing year or bringing into balance the tax year which is the calendar year and the Federal fiscal year or aren't we going to be working partly at cross-purposes?

Dr. NISKANEN. There is a further concern, Senator. I suggested two things, one that the tax year be changed beginning on the calendar year based on all appropriations through the end of November, plus the President's proposal for any appropriations actions not yet considered to give Congress an incentive to speed up that process somewhat. Then the tax year would be changed coincident with the calen

dar year beginning in January, based on actions by Congress through November.

If there are earlier appropriations, it does allow for it to be a few months out of phase.

I am less concerned about the timing than I am on the effect of the totals and the range of those totals.

Senator BENNETT. If you don't make some adjustment and you have a 6-month out of phase situation

Dr. NISKANEN. Up to 6 months, that is correct, although in recent years we haven't had appropriation bills until way into the fiscal year.

Senator BENNETT. And the money has been spent. It carries over with continuing resolutions.

Dr. NISKANEN. That is right, at the prior level.
Senator BENNETT. That is all I have.
Chairman WHITTEN. Senator Fannin.

Senator FANNIN. Thank you, Mr. Chairman and Professor Niskanen, I am pleased to have you with us here today. You did come quite some distance to be with us.

I would like to comment on page 3 in your suggestions, item B, about the personal income tax to generate the revenues. I certainly understand this would get the people's attention, perhaps to a greater extent than if you included corporate tax, but I am thinking about the realities of getting any bill adopted. To say that just the personal income tax is involved always waves a red flag.

Would it be possible to include corporate tax, too?

Dr. NISKANEN. Yes; of course, it would be possible. I think it would somewhat weaken the effect of the proposal, primarily because perception about who bears the corporate tax is not at all clear and it is not widely shared.

If it is an essential feature to gain acceptance for the proposal, I think it would be a desirable change.

Senator FANNIN. I agree with you that the personal income tax would bring to the attention of the people more readily what is being done. But I am thinking about votes and I think it would be necessary to include corporate tax along with the personal income tax.

In Arizona, we have a system similar to what you have suggested, but unfortunately it is based on the property tax. We in the State of Arizona decide how much money can be raised and we try to keep our budget within that limit, but if we find it is not within the limit, then the adjustment is made on the property tax.

Do you feel that the personal income tax is a much more equitable tax, even if we could adopt that at the State level ?

Dr. NISKANEN. Yes; I would believe so.

Senator FANNIN. The tax trigger is very important. I am really concerned that if we do not have some mandatory trigger device, Congress would be reluctant to act. So I commend you on that recommendation. It may be difficult for us to get approval, but I think it is certainly a sound policy.

Professor, I want to express my personal thanks as well as that of the committee members, for your appearance here today. I think you have given us some very beneficial information and I look forward to reading your complete proposal. I also thank you for the information vou have sent to my office.

Dr. NISKANEN. Thank you.
Chairman WHITTEN. Thank you again.

The committee will recess until 2 o'clock.

[Whereupon, at 12:05 p.m. the committee was recessed to reconvene at 2 p.m.]

AFTERNOON SESSION

Chairman ULLMAN. The committee will be in order.

I am very pleased to have as our first witness this afternoon our distinguished colleague from Ohio, a member of the Ways and Means Committee, a budgeteer of note, and we are looking forward to hearing your recommendations, Congressman Charles Vanik of Ohio.

STATEMENT OF HON. CHARLES VANIK, A U.S. REPRESENTATIVE

FROM THE STATE OF OHIO

Mr. VANIK. Thank you, Mr. Chairman.

I ask unanimous consent that at this point I might have my total statement inserted into the record.

Chairman ULLMAN. I listened very carefully to your unanimousconsent request, without objection your full statement will be in the record.

Mr. VANIK. Mr. Chairman and members of the committee, thank you for this opportunity to address the Joint Budget Committee on the most fundamental challenge facing the 93d Congress—Waning congressional oversight in the budgetary process.

In 1921 the Congress enacted the Budget and Accounting Act which for the first time created the concept of an executive budget. This legislative act built the "budget train” that was initially "engineered” by Congress through the appropriations process. But since that time, budget expansion has in many ways been controlled by faceless bureaucrats who have shoveled coal in the engine room at unprecedented levels, speeding up the "budget train" beyond the control of Congress.

My statement will be directed to several of the many ways and means used by the Executive in the budgetary process to circumvent the Congress in directing national priorities.

ADMINISTRATION'S EFFORTS TO CONTROL THE BUDGET HAVE BEEN HALF

HEARTED AND INFLATIONARY

The administration's approach in controlling the budget has been to fix an overall limitation on budget expenditures. This approach has been a halfhearted effort, as public borrowing of Federal and guaranteed loans from private lenders go uncontrolled. This borrowing has created inflationary pressure and increasing heat on interest rates.

Reduction and limitations on spending is not enough. It must be joined by a limitation on public borrowing of which Congress has lost almost all control.

Today, without consulting Congress, the following agencies have authority to borrow Federal or private funds guaranteed by all the taxpayers of America.

Each one of these lending agencies either: (a) is not in the budget; (6) is not subject to the annual appropriations process; or (c) is not annually examined by the authorizing committees of Congress.

In many cases, all three of the above pertain to a particular lending agency, reflecting its isolation from congressional scrutiny. EXECUTIVE CONTROL OVER MAJOR FEDERAL AND FEDERALLY ASSISTED BORROWINGS

IN THE PRIVATE MARKET

Type of borrowing

Treasury control

Other control

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A. Securities issued by Government-spon

sored agencies (nonbudget agencies): 1. Federal National Mortgage FNMA is required by law to obtain President appoints of board of Association.

Treasury approval of market bor directors and may remove any rowings, including debentures, director for good cause. (12 U.S.C. notes, mortgage-backed securities, 1723.) Secretary of HUD has general and subordinated obligations, regulatory power, including apTreasury may purchase up to proval of stock and other security $2,250,000,000 of FNMA obliga issues (12 U.S.C. 1723a, 1723c) and tions. (12 U.S.C. 1719.)

the ratio of debt to capital (12

U.S.C. 1719). 2. Federal home loan banks....... Required by law to obtain Treasury President appoints the 3 members of

approval of timing and terms of the Federal Home Loan Bank market borrowings. Treasury may Board which supervises the Federal purchase up to $4,000,000,000 of home loan banks. (12 U.S.C. 1437, FHLB obligations. (12 U.S.C. 1431.)

note.) 3. Farm Credit Administration: Treasury approval not required by President appoints 12 members to the

Banks for cooperatives; Fed by law (31 U.S.C. 868) but agen Federal Farm Credit Board (the eral intermediate credit cies consult with Treasury as a 13th member is appointed by the banks; Federal land banks. matter of practice on proposed Secretary of Agriculture) (12 U.S.C. market borrowings.

2242), which provides policy

guidance for FCA. (12 U.S.C. 2243.) 4. Federal Home Loan Mortgage No provision in law but has con- Board of Directors is composed of the

Corporation (title III, Public sulted with Treasury on proposed members of the Federal Home
Law 91-351).
borrowings.

Loan Bank Board. (Public Law

91-351, sec. 303.)
5. National Railroad Passenger No provision in law, but has con- President appoints 8 (1 of whom must

Corporation (title III, Public sulted with Treasury on proposed be the Secretary of Transportation)
Law 91-518).

borrowings. Secretary of the of the 15-member board of directors
Treasury has 2 representatives (Public Law 91-518, sec. 303).
on the financial advisory panel to Secretary of Transportation may
advise NRPC on ways and means guarantee up to $100,000,000 of
of increasing its capitalization. NRPC obligations. (Public Law
(Public Law 91-518, sec. 501, 91-518, sec. 602.)

502.)
6. Securities Investor Protection No provision in law and no experi. President appoints 5 of the 7-member

Corporation (Public Law 91- ence to date. SEC may borrow up board of directors. Federal Reserve 598.)

to $1,000,000,000 from Treasury Board and Secretary of the Treasury for loans to SIPC. (Public Law each appoint 1 member. (Public 91-598, sec. 4.)

Law 91-598, sec. 3.) 8. Securities issued by Government agen

cies (budget agencies):
1. Export-Import Bank...-.. Required by law to obtain Treasury Now excluded from the budget totals

approval of timing and terms of (Public Law 92-126) but still sub-
market borrowings. (31 U.S.C. ject to control through the regular
869.) May issue to Treasury up to budget review process.
$5,000,000,000 of obligations. (12

U.S.C. 635d.)
2. Rural Telephone Bank.......... Required by law to obtain Treasury Inclusion in the budget provides a

approval of timing and terms of means for control through the
market borrowings (7 U.S.C. 943, regular budget review process.

31 U.S.C. 868.)
3. Tennessee Valley Authority. Required to obtain Treasury approval

of timing and rates on market bor-
rowings of 1 year or more. If
Treasury does not approve, may
issue interim obligations (1 year
or less) to Treasury. Also may is-
sue interim obligations to Treasury
if TVA determines that bonds can-
not be sold on reasonable terms.
Interim obligations held by Treas-
ury may not exceed $150,000,000.

(16 U.S.C. 831 n-4.)
U.S. Postal Service. (Public Law Required to advise and consult as President appoints the Governors of

91-375, reenactment of 39 to amount, timing, and terms of the Postal Service. Postal Service
U.S.C.).

proposed market borrowings. outlays are included in the Federal
Treasury may elect to purchase budget, but such outlays are largely
such obligations. May require financed through permanent ap-
Treasury to purchase up to $2 propriations which are not subject
000,000,000. May request Treas. to the normal budget review
ury to pledge full faith and credit process.
of United States to payment of
principal and interest on USPS
obligations. (39 U.S.C. 2006.)

EXECUTIVE CONTROL OVER MAJOR FEDERAL AND FEDERALLY ASSISTED BORROWINGS

IN THE PRIVATE MARKET-Continued

Type of borrowing

Treasury control

Other control

C. Guaranteed securities sold (asset sales) Law requires Treasury approval. Programs are subject to regular budg.

by Farmers Home Administration, (Public Law 89-429, Sec 6.) et review process but asset sales HEW, HUD (except GNMA), VA,

offset budget outlays. Export-Import Bank, and SBA. D. Other securities guaranteed by Govern- No provision in law and generally no Programs are subject to regular budg.

ment agencies: GNMA mortgage consultation in practice except on et review process but guaranteed backed bonds, new community de certain occasions when new in loans do not affect budget totals bentures, public housing notes and stiuments are designed or special except for debt service grants, debonds, urban renewal notes, mer marketing problems arise, 1

faults, and administrative expenses chant marine bonds, asset sales by GNMA and other agencies not in

cluded in C above. E. Other obligations guaranteed by Govern. No provision in law and generally no Programs are subject to regular

ment agencies but generally origi consultation in practice except for budget review process but guarannated and held by private lending establishing interest-rate ceilings teed loans do not affect budget institutions rather than sold in securi in certain programs.

totals except for debt service ties market. These are largely guaran

grants, defaults, and administrative tees by the Federal Housing Adminis

expenses. Also, these programs tration, VA, HEW, Eximbank, and

are generally more subject to overSBA.

all restraints on private institutional lenders than programs financed directly in securities markets under A-D above.

1 The Secretary of Commerce and the Secretary of the Treasury have agreed to consult on a continuing basis concerning the timing, terms, and other financial arrangements of offerings of guaranteed merchant marine bonds.

Source: Office of Debt Analysis, Office of the Secretary of the Treasury (revised June 8, 1972).

Thus it appears that these agencies and instrumentalities can go into the money markets at will and create horrendous pressures on the money markets. These agencies fuel inflation and “wash out” our efforts to control inflation and stabilize interest rates.

I propose that your committee recommend an overall borrowing ceiling which will apply to all of the borrowing authority authorized by Congress, either by a percentage limitation of total unused authority or under a borrowing ceiling with priorities redetermined by congressional action.

It is incredible, but according to testimony submitted by Under Secretary Volcker to the House Ways and Means Committee last September, over $27 billion will be borrowed in fiscal year 1973 outside of the debt limit. The authority for borrowing and guaranteeing outside of the debt limit is incredible. The following list includes projected borrowing.

Export-Import Bank-$2 billion in coming years.
Rural Telephone Bank-$100 million.

Postal—$10 billion-$2 billion of which may be bought by Treasury.

Farmers Home Administration asset sales—$3 billion.
Maritime Merchant Marine bonds_$400 million—1974.
Academic facilities (HEW)-$300 million.
Student Loan Market Association-$1 to $2 billion/year.
College housing bonds.
Community debentures—$100 million.
Public housing bonds and notes—$2 to $3 billion/year.

Urban renewal notes--235 and 236 Housing-several hundred million.

Amtrak.
Washington Metro Authority—$1 billion.

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