CUTS HAVE BEEN SECURED, THE CONGRESS SHOULD ONLY CONSIDER TAX A LOW

INCREASES WHICH WILL STIMULATE SAVINGS AND INVESTMENT.

CONSUMPTION TAX, WHICH WOULD BE PARTIALLY

REBATED THROUGH

EXPANDED IRA's, PERSONAL AND CORPORATE RATE REDUCTIONS, AND

INCENTIVES FOR SAVINGS AND INVESTMENT, WOULD BE IN THE BALLPARK,

PROVIDED, OF COURSE, THAT THE SPENDING CUTS ARE IN HAND AND NOT

IN THE BUSH.

MR. CHAIRMAN, I'M EXTREMELY PLEASED THAT YOU HAVE CALLED THIS HEARING. IT'S GOOD TO SEE THAT THERE IS AT LEAST ONE MAN IN THE CONGRESS WHO REALIZES THAT THE TIME HAS COME TO GET TOUGH ON

THE DEFICITS.

THANK YOU.

The CHAIRMAN. Jerry.

STATEMENT OF JERRY JASINOWSKI, EXECUTIVE VICE PRESIDENT AND CHIEF ECONOMIST, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, D.C.

Mr. JASINOWSKI. Thank you very much, Mr. Chairman.

The CHAIRMAN. We didn't list Jerry as an economist. No, I guess we did.

Mr. JASINOWSKI. Thank you very much, Mr. Chairman. The National Association of Manufacturers is delighted to be a part of these important hearings. I join with Jack Albertine and the members of our association in commending you for the consistent focus that you have put on this issue.

I have a long statement, which I would like to summarize. Dealing with the deficit is a little bit like the challenge that faced Sisyphus. Sisyphus, as you may recall, was not a fieldgoal kicker for the Green Bay Packers. He was a Greek king who was condemned in hell to constantly push a large stone up a hill, only to see that stone continually roll back.

I was struck this morning, as I am sure you were, and many others, that that's a bit like what the deficit problem is. As I looked at the CBO numbers that were released yesterday, they showed that we face potentially a $280 billion deficit in fiscal 1989, that the

national debt may double in 6 years, and that the interest payments on the debt will grow faster than the rate of growth of the gross national product. If the cost of financing the national debt grows faster than the economy, it will increase the size of future deficits and call into question our very ability to pay for those defi

cits.

There is for the first time, it seems to me, the potential for these deficits to become self-perpetuating. The major cause for the deficit, as we have argued before, is spending increases that have exceeded our revenue base. Receipts today are 20 percent of GNP, which is what they were more or less in 1970. Over the same period, our outlays have jumped 5 percentage points in relation to GNP, from 20 to 25 percent because of the massive increase in transfer payments in the seventies, and more recently because of defense and interest rate payments.

The adverse effects of these large deficits in addition to the possibility they may become self-perpetuating are outlined in our testimony in detail, and include lower levels of capital formation and productivity growth, the potential for increased inflation, higher interest rates, continued over-valuation of the dollar and lost trade competitiveness, and increased future business cycle instability.

Clearly we must act to reduce these huge deficits and define a way to keep these deficits under control in the future. It seems to me that the projected deficits need to be reduced by about $100 billion in order to bring the full employment budget deficits into some balance over the business cycle.

At the minimum, at the minimum, neither the national debt nor the debt service thereon should be permitted to increase faster than the growth in the economy in a recovery period. If they do, we risk losing control of the deficit situation completely.

To deal with this, Mr. Chairman, we don't have answers that are definitive. Still, I would submit the following five items to guide this committee.

We continue to believe quite strongly that the primary strategy for lowering Federal deficits must consist of across-the-board reductions in the growth of Federal spending, including social security, medicare and defense spending.

Second, no new entitlement programs should be created and all existing index entitlement programs, including social security, should be indexed to something less than 100 percent of the CPI, which overstates the rate of inflation.

Third, the budget process should be strengthened through spending limitations either in terms of across-the-board percentage cuts or by holding spending to a specified percentage of GNP. A limit should be placed on Federal credit activity.

Fourth, we urge that any future deficit reduction package be structured so that, as you have indicated yourself, on a year-byyear basis no planned tax increase will go into effect until there has been an objective, clear, certifiable indication that spending cuts have been made and are at least greater than any tax in

creases.

Finally, it may be that the deficit reduction efforts being made necessitate a package which combines expenditure reductions with revenue increases. If so, Congress and the administration should

carefully investigate, making major structural revisions of our tax laws, such as a consumption tax.

That completes my testimony, Mr. Chairman.

The CHAIRMAN. Well, thank you very much.

[The prepared statement of Mr. Jasinowski follows:]

STATEMENT OF

JERRY J. JASINOWSKI

EXECUTIVE VICE PRESIDENT AND CHIEF ECONOMIST

OF THE

NATIONAL ASSOCIATION OF MANUFACTURERS

BEFORE THE

SENATE FINANCE COMMITTEE

ON THE FEDERAL DEFICIT AND THE ECONOMY

DECEMBER 13, 1983

I am Jerry Jasinowski, Executive Vice President and Chief Economist of the National Association of Manufacturers (NAM).

business

The National Association of Manufacturers is a voluntary association of over 13,000 corporations, large and small, located in every state. Eighty percent of the firms are considered to be small businesses. NAM member companies employ 85 percent of all workers in manufacturing and produce over 80 percent of the nation's manufactured goods. NAM is affiliated with an additional 158,000 businesses through its Associations Council and the National Industrial Council. On behalf of our members, we are pleased to have this opportunity to present our views on the federal deficit and to discuss what would be an appropriate posture for fiscal policy in the stabilization of the macroeconomy.

This statement sets forth (1) an overview of the current and projected magnitudes of federal deficits; (2) a description of the longer term causes of the rise in federal deficits and the trends that have affected fiscal policy in general; (3) a discussion of the economic significance of the deficits; and (4) an analysis of various policy options for dealing with the deficit issue.

MAGNITUDE OF THE DEFICITS

According to recent preliminary projections by the Congressional Budget Office (CBO), the federal deficit will amount to $194 billion in FY 1984 and, after several years at the same level, will begin to rise again for the balance of the decade. The deficit is projected at $192 billion in FY 1985, $197 billion in FY 1986, $227 billion in FY 1987, $249 billion in FY 1988, and $280 billion in FY 1989. This translates into a brief decline and then an upsurge in the ratio of the deficit to gross national product (GNP), which is projected at 5.5% in FY 1984, 4.9% in FY 1985, 4.7% in FY 1986, 5.0% in FY 1987, 5.1% in FY 1988 and 5.3% in FY 1989. Thus, throughout the balance of the decade--and despite reasonably good economic growth assumptions--the real magnitude of the deficits as expressed as a ratio to GNP will continuously surpass all postwar precedents.

standardized

Table 1 provides the preliminary CBO deficit projections and other related figures in columnar form. Among other things, this Table indicates that the full employment deficit will rise continuously throughout the remainder of the 1980's until it has increased by more than half, beginning at 3.0% of GNP in FY 1984 and ending at 4.6% of GNP in FY 1989. This tends to indicate that, even as we move towards full employment,

we

will still be

putting excessive stimulus into the economic system through large deficits.