5. Additional reductions should be sought in nondefense discretionary programs. The recommendations of the General Accounting Office, the Congressional Budget Office, the Grace Commission, and previous Administration budget proposals should be given serious consideration. 6. All government and nonprofit workers should be included in the Social Security system starting in 1985, rather than the far more limited number that will be included pursuant to the recently enacted Social Security legislation. This approach, combined with the COLA cap, will substantially improve the solvency of the system, without overburdening existing workers and employers, or breaking parity in their payments, and without tapping general revenues. 7. Efforts should be made to limit off-budget outlays, including federal loans and loan guarantees, to bring selected off-budget programs on the unified budget and to enact legislation that would subject the off-budget outlays and commitments to the controls and procedures of the existing budget process. When we presented this proposal last year, we estimated that, under CBO high growth economic assumptions and OMB baseline projections, it would lead to a balanced budget by FY '89 without having to rely on any major tax increase. The absence of official baseline projections and economic assumptions prevent us from providing detailed outlay estimates for the proposal at this time. However, given the robust economic growth now underway, our preliminary estimates lead us to believe that the enactment of the proposals embodied in this budget would lead to a balanced budget within five fiscal years. Conclusion A little more than three years ago, the American electorate voted overwhelmingly for a Senate and a President that promised to reduce the size of government. Despite this mandate, our elected officials have instead enlarged the scope of government. Had we simply held the burden of spending at the share of output that characterized the budget during President Carter's last full fiscal year, spending today would be $62 billion lower, and the deficit would not be nearly the problem that most perceive. The CHAIRMAN. Harry, I think you are next. STATEMENT OF HARRY PRYDE, PRESIDENT, NATIONAL Mr. PRYDE. I am Harry Pryde, the president of the National Association of Home Builders. Well, Mr. Chairman, with all the bombs going off in the Middle East, we still feel-and, of course, it has been very difficult to focus on the ticking time bomb we have going off here some time in the future in this country. And we compliment you on your leadership in focusing national attention on the No. 1 priority in this country. We feel housing is in the eye of the hurricane, and that action is needed now to enact a combination of spending reductions and tax increases to reduce the unprecedented Federal deficits that we have. Otherwise, the economy will not grow, the deficits will widen as the economy slows, and interest rates will turn upward. As Mr. Greenspan has said recently, the spector of continued large deficits have increased current rates by as much as 4 percent. Should deficits remain high, the most likely scenario is a clash for funds between the private and public sector. In 1983, as we know, the Federal Government has taken in excess of 50 percent of the loanable funds of the country. We feel a delay until 1985 could be fatal to the current economic recovery. Without action, the Federal deficits will certainly exceed over $200 billion through 1988, as we have heard earlier. And to push this program until 1985 means that as a practical matter no changes will really take place until 1986, which we feel could be too late. The specific program for reducing the deficits should be a balance between spending reductions and tax increases. Broad based tax increases, which are neutral in terms of modifying investment incentives and behavior should be considered. Among the options are the administration's contingency tax plan, the Danforth-Boren indexing, freezing scheduled future tax reductions, and generally the Finance Committee's deficit reduction package. The proposal to broaden the tax base should, however, be viewed with skepticism. For rental housing, tax expenditures are a legitimate and necessary means of attracting needed capital. That's very important. The changes that have been outlined could drastically reduce such capital formation. And in conclusion, NAHB members feel so strongly about this issue that we have embarked on a national grass roots campaign last fall to develop a bipartisan consensus, as you know, for action. The campaign is the result of a growing awareness that the Federal deficits are a major deterrent, we feel, to sustained economic recovery so important in our country. And that our childrens' future is at stake, and is being stolen. And your leadership in confronting this issue now is greatly appreciated. The CHAIRMAN. Thank you very much, Mr. Pryde. [The prepared statement of Mr. Pryde follows:] 30-228 0-84--23 STATEMENT OF THE NATIONAL ASSOCIATION OF HOME BUILDERS before THE SENATE FINANCE COMMITTEE ON DEFICIT REDUCTION LEGISLATION on December 13, 1983 Mr. Chairman and Members of the Committee: My name is Harry Pryde and I am President of the NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB). more than 117,000 members of NAHB. the nation's homebuilding industry. I am testifying on behalf of NAHB is a trade association of Accompanying me today are Jim Schuyler, NAHB's Staff Vice President/Legislative Counsel, and Ed Beck, NAHB's Tax Counsel. NAHB appreciates the opportunity to present its views on the need to enact major deficit reductions prior to 1985. NAHB applauds your leadership and the leadership which the Finance Committee has shown to develop a program for reducing ever increasing federal deficits. Action now to enact a combination of spending reductions and tax increases to reduce the unprecedented federal deficit should be the number one domestic priority of the Congress and this admini stration during 1984. NAHB's members feel so strongly about this issue that NAHB have embarked on a national, grassroots campaign to develop a broad consensus for action. The campaign is the result of a growing awareness among NAHB's membership and leadership that federal budget deficits are a major deterrent to sustained economic growth and the continuing health of the American economy. In the early part of 1983, interest rates were trending downward and an economic recovery was well under way. However, the prospects of an ever increasing deficit along with the political stalemate which has developed in the Congress and with the Administration have created mounting uncertainty about the ability of the economy to continue to grow beyond 1984 in a non-inflationary manner. The current economic situation demands bold and creative political leadership. High interest rates will ultimately be a drag on the economy to the point where NAHB now sees a long-term sustained economic recovery in jeopardy. To maintain the current economic recovery at a healthy, noninflationary pace, NAHB supports a bipartisan compromise on the following issues: Domestic discretionary spending should be restricted. The growth in entitlement programs must be scaled back. Increase in defense spending must be curtailed. Appropriate tax increase that will not abort the recovery should be instituted now. Federal Reserve monetary policy should provide for modate economic growth. NAHB has not only embarked on a nationwide educational and grassroots lobbying campaign to encourage action on the deficit immediately, it has also supported legislation in the Congress to achieve this result. Most recently, it actively worked in the House of Representatives for passage of the Ways and Means Committee tax In response to the specific items for consideration mentioned in the Press Release announcing this hearing, the consequences of failure to act are enormous. In terms just of government finance, mounting government deficits, piled each year on top of each other, have ballooned the federal debt and increased interest payments to such a degree that interest now constitutes the third highest expenditure in the federal government, after national defense and income security. Mounting deficits will continue to strain the capacity of the government merely to pay interest on its debt. The more the debt grows, the higher the interest rates it has to pay to keep borrowing money; and servicing the debt eats up more and more of the funds needed for economic growth. Large projected deficits and the uncertainty of any future action to reduce them raise inflationary expectations. Even at a time of historically low current rates of inflation, a large interest premium is placed on long term debt financing, especially home mortgages. This translates into higher housing costs for home buyers and a curtailment of needed investment in new rental housing. |