eelings n, and flation tuation hen we me time - of the ograms. e butter Federal barking udget is a Russia , but to dantag which we vell. My r and ine billions and other more than revenues ime when new and ther with ur deficit f if it had es. It was s into this l mess is ake action r to reduce e balanced equires the necessary, can be cut st be made e Congress. pe that the ck. I merely he executive adget, nor is everything that the Congress does sacrosanct. There has to b tion between the two of us if we are to promote fiscal sta responsibility. I have been on this committee now for a long time, and I a member of the Congress for 23 years, and my experience that when cuts are made either by the House or by the S usually get a lobbying procession that begins from the department that comes in for reclamas, or comes in to j fact that the budget cut has to be restored. Now, I realize that in some instances, possibly the one original jurisdiction has not heard all of the facts, and p may come to the conclusion that the bill needs to be revie it comes before the Senate committee. But I would hope t cedure could be determined that before a reclama could be before any individual of the executive department comes for a reclama on a cut that has been made, that the matter first by the Office of Management and Budget, as you do on t estimate. Unless we get together, there are going to be insta amendments will be made on the floor of the Senate or on t the House, and the question of priorities will always come and maybe we do establish a ceiling. I am on the Joint Committee on the Budget, and we anxious to establish a ceiling, and in all probability a ceiling established. Whether it is done by the executive or do Congress, of course, is the issue at the present time. That is name of the game is priorities. In many instances, I suppose, certain departments f certain project should go forward and certain other proje not. There may be a disagreement on the part of the Congr is really the Congress that represents the people of the Uni of America by the process of election. I am not saying th always wrong and we are always right. There are many where we ought to get together. Every time you cut out a project in defense, you get half up here actually lobbying every Senator and every Con Every time you make a cut in any department there is being sought for without clearance from the Office of Ma and Budget. I think this matter ought to be taken under se sideration, because if we are ever going to bring this thi context that is reasonable, I think we have to have coop both sides. RECOGNITION OF COMMITTEE MEMBERS Chairman MCCLELLAN. Senator Hruska. Senator HRUSKA. Į have no statement at this time, Mr. Senator BIBLE. No, I have no statement. I shall be very in seeing how they work out their impoundment probler answers. I think that is why we are here. I know two very and brilliant men such as our witnesses will have the answer I came in time to hear Senator Pastore lay it on the lin expressed just about my sentiments. I am waiting to hear th Chairman MCCLELLAN. Senator Stevens. H Senator MATHIAS. Thank you, Mr. Chairman. I have no ex comments except to say that as I read the Constitution, we wil the last word. So, I am glad to give the first words to the Secreta Mr. Ash. Chairman MCCLELLAN. Senator Montoya. Senator MONTOYA. I have no statement. Thank you, Mr. Chai Senator BELLMON. No statement. Chairman MCCLELLAN. Senator Inouye. Chairman. MCCLELLAN. Senator McGee. Senator MCGEE. I have a statement, Mr. Chairman. STATEMENT OF SENATOR M'GEE Senator MCGEE. The question that I wanted to raise here morning and to which I hope that our witnesses can address t selves has nothing to do with impoundment. It has to do with a basic issue. I can illustrate it by reference to a couple of progra establish the constitutional principle. This involves two prog for which OMB and the President requested funds a year without any qualifications, expressed reservations, or hesitation. We convened the Subcommittee on Agriculture to hear the ap priations request. We added funds to the request; and, as I unders impoundment, had the President chosen to do so, he might impounded the difference between what he asked for and wha granted in both the REA loan program and REAP. I am using t as illustrations. On August 22, 1972, he signed that bill into law wit any hesitation, even with the additions that we made, and we home for the elections last fall. On January 1, my first notice, in the newspaper that both programs had been wiped outpartially frozen, but wiped out. I It seems to me in the elementary sense that this raises a ser and basic constitutional question, Mr. Chairman. So, with thought in mind, I am hoping that the witnesses this morning wi able to address themselves to that basic constitutional quest Without invoking names here I can say that two former member the highest court in the land believe this is the hardcore constituti issue present today. I find that many of my colleagues are slipping off it by get entrapped and sidetracked by the impoundment question, and are ignoring the fundamental constitutional issue. The programs which these funds were requested were initiated and enacted un the constitutional process. The Congress fulfilled its responsibi by supplying those funds, and additional ones I hasten to add. T was not simply the impoundment of the difference. There was Chairman MCCLELLAN. Very well. Is there anything else that anyone else wishes to say? As the Chair observes, there is a very serious and nagging constitutional question involved in this impoundment and the withholding of funds. Notwithstanding that, as I pointed out, I don't believe the issue is going to be resolved any time very soon. We are going to have to proceed with appropriations for the ensuing year. We will, as I have indicated, so far as I am personally concerned, try to hold appropriations in line with our ability to finance programs, looking someday again toward a better balance between income and outlay of Federal revenues. So we welcome you this morning, Mr. Secretary. We shall be glad to have you present now in your own way a statement, and then we would like to ask you some questions. So, you may proceed. I notice you have a prepared statement. You may read it if you like. STATEMENT OF HON. GEORGE P. SHULTZ NECESSITY FOR RESTRAINT AND DISCIPLINE Secretary SHULTZ. Thank you, Mr. Chairman and members of the committee, I have listened with great interest to the comments made here. Senator Mathias said he would have the last word while we had the first word. It strikes me that you have done a pretty good job in having the first word too. I welcome very much the statements that have been made here, particularly, Mr. Chairman, the tone of your remarks indicating that restraint and discipline are called for. Although we thought fiscal stimulus was the right answer during one period of time, we should be ready to change our minds when the economy and employment are expanding strongly. I welcome the timing of this hearing and your own expressed desire to have the appropriations process take a strong role. I welcome also the procedure you suggested of setting a goal and then trying to work within that goal as you establish the priorities that you feel are appropriate. I can assure you that in doing so, you will certainly have the full cooperation of my office and, I know, of the Office of Management and Budget, in trying to assess the budget situation and in working together most effectively. Mr. Chairman, the tables attached to my statement provide a summary of the revenue projections in the budget, so I will mention only a few of the highlights. We are projecting a $16.3 billion gain in receipts for the current fiscal year to a total of $225 billion. For 1974, we anticipate a $31 billion gain in revenues. Most of this very large increase is due to the strength of the economy, but some $8 billion in added receipts stem from increased social security taxes that were legislated last year. Next year's receipts, then, are estimated at $256 billion. The President has recommended an $18 billion increase in Federal expenditures for the current fiscal year to a total of $250 billion. This will produce a very substantial budget deficit of almost $25 billion, although the budget will again be roughly in balance on a full-employment basis. Our budget for fiscal 1974 calls for a $19 billion increase in Federal outlays to a total of about $269 billion. This increase in spending coupled with the more rapid rise in receipts will cut the deficit almost in half, to $12.7 billion. On a full-employment basis, outlays and receipts are in balance. The President's budget request for 1973 and 1974 will help the United States achieve many important objectives. The substantial increases in Federal outlays provide for an adequate military defense and for many of the other growing needs of the American people. These budgets are also fully consistent with our basic economic objectives. Last year, employment increased by an extraordinary 2.3 million persons, total economic output advanced 6.4 percent, and the rate of inflation slowed to about 3 percent. This year we expect the economy to continue to move ahead. Real economic growth for calendar year 1973 will be approximately 6% percent. The unemployment rate will, we believe, drop to around 41⁄2 percent by the end of the year. At the same time, inflation will slacken further: we look for the increase in consumer prices to be down to 21⁄2 percent or less by the end of the year. I might say that is our goal. We recognize that is an ambitious goal, but we think it is a very important goal to try to achieve and to do everything we can to achieve it. Our improving economic performance, both last year and this year, is accounted for primarily by the vigor of the private sector, although the stimulus provided by our budget deficits has made a contribution to the expansion. It is important, however, to curtail this stimulus as the economy approaches its full potential output. In this way the budget is on guard against inflation. By keeping both the 1973 and 1974 budgets close to balance on a full-employment basis, we maintain the conditions that are necessary to prevent a new outbreak of the massive inflationary pressures that were created by the runaway budgets of 1966-68. This committee was instrumental in developing the bipartisan Federal budget in fiscal 1969 that marked a return to sound fiscal policy. To avoid getting back into that same kind of situation, we again need close cooperation between the Congress and the executive branch. I certainly welcome all the statements along that line made by members of this committee this morning. Such cooperation is crucial to the integrity of fiscal policy. Only in this way can we properly serve the needs of the American people. Only this way can we maintain a healthy economic environment in which business activity can grow unemployment can be reduced, and inflation can continue to slow. If we fail in this endeavor, if Federal spending soars beyond full-employ ment revenues, it cannot help but lead to a resurgence of inflation o an increase in taxation, or both. Thank you, Mr. Chairman. Chairman MCCLELLAN. Thank you, Mr. Secretary. REVENUE PROJECTIONS We will insert at this point tables on revenue projections. [The tables follow:] |