virtually nil. And we are over there telling them to gear up their economy when our gearing up has just been a disaster. And I think in terms of that, I have one more quote here which I think sums up this. British Prime Minister Callaghan recently said: We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that that option no longer exists and that insofar as it ever did exist, it only worked by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment. This is the history of the past 20 years. I predict when the history of the 1970's is written, that quote will be at the forefront of this age. VOLUNTARILY FIGHT INFLATION As I said earlier, I think we can voluntarily fight-beat inflation. If we don't, we'll have a stock market crash as we did in the late twenties followed by depression that all of us will suffer more in the long run. I am, you know, hopeful that the American people are ready to bite the bullet, and we can get back on thrifty, solid fiscally responsible road. Congressman ALLEN. Mr. Davis, is your association affiliated with the Tennessee Taxpayers Association? Mr. DAVIS. No, sir. BALANCING THE BUDGET Congressman ALLEN. We are talking about the desirable goal that we all recognize, balancing the budget. Now, would you suggest that we balance the budget by both raising taxes and reducing expenditures, or simply by reducing expenditures, or if we are going to raise taxes, do you think that those who are most able to pay, namely business firms and the wealthy, should be saddled with the greater part of that increase in taxes? Because obviously you are going to have to do one of two things, or probably both. If we balance the budget, we're going to have to cut expenditures, we're going to have to raise taxes, or we're going to have to do one or the other or both. What would your approach be? CUT GOVERNMENT SPENDING Mr. DAVIS. Well, I think, you know, everybody in here would agree we're all in favor of cutting taxes. But I think a tax cut is, you know, you get a gift back from the Government, and you end up paying for it in terms of higher inflation, which reduces your purchasing power and higher interest rates. So I don't believe that, you know, while cutting taxes-I don't see how anybody can argue against that, on the other hand, I really don't think it does us that much good. I would be in favor of-I think our base of taxable revenues is-personally I don't believe we can afford to cut it much more, and I would, of course, be in favor of cutting Government spending considerably. RETURN OBLIGATIONS TO STATE AND LOCAL GOVERNMENTS? Congressman ALLEN. You think it's feasible, then, for us to cut Federal expenditures projected for this coming fiscal year bywhat would it be, $60 billion, without just playing havoc with this Nation? What would happen to the local property taxes, for example, if we put back upon the States and the local governments the obligation to raise the money that they now look to the Federal Government for? How do we go about it? It's easy enough to say we need a balanced budget. I'm for that. But I would like to have some concrete suggestions from you as to how you would go about doing it. Would you leave the taxes as they are now and simply cut Federal expenditures? NO POLITICALLY ACCEPTABLE ANSWER Mr. DAVIS. I think what you are asking for is is there a politically acceptable, nice answer. Frankly, I don't believe there is. This would be, as I said with the situation about heroin. I think it is true. What do you do with a guy on heroin? If you take him off the drug, particularly if you take him off rapidly, he can die. And it does cause a lot of pain. I think really, frankly, I think we're in that situation. Congressman ALLEN. Would you favor increasing taxes this year to help balance the budget? Mr. DAVIS. No; I would go for cutting Government spending first. Congressman ALLEN. You would then undertake to balance the budget by simply cutting expenditures to come within our present revenues, is that correct? Mr. DAVIS. Yes. Congressman ALLEN. I see. And wherein would you cut the Federal budget? Mr. DAVIS. Well, I'm really not qualified to say. Mr. Davis. No, I'm not qualified to make that priority, which priority we would cut. But I do think we are on a very dangerous road, and I do think we need to go in that direction. Most of the proposals I hear are for new programs, not for examining the old programs and- INCREASE IN TAXES Congressman ALLEN. If we continued with those programs, simply raise taxes sufficiently to meet the cost, would that satisfy you? Mr. DAVIS. Frankly, as I say, raising taxes would not be an attractive alternative. But I believe in the end we have, with raised taxes, we would have lower rates of inflation and lower interest rates, and we'd be just as well off. So if you want me to go that way, I'll go that way. I don't believe we'd be worse off with higher taxes. Congressman ALLEN. You would not necessarily be against increase in taxes to help balance the budget. Mr. DAVIS. No. Congressman ALLEN. Thank you, sir. LOSS OF TAX REVENUE Senator SASSER. I might make this comment, Mr. Davis. I sympathize very much with your concern about the Federal deficit and it is something that gives us all some sleepless nights on occasion. But our economists tell us that if we were to cut this budget by $60 billion and maintain tax levels at their present levels, that a $60 billion budget cut would, in the following year, reduce Federal revenues by $25 billion brought about by economic slowdowns and resultant loss of tax revenues coming into the Federal Treasury. So then in order to balance the budget, you've got to cut another $25 billion and then you get these repercussions in the next year. So I think you can see the fear is that you get into a spiral down, down, down. That's the problem we find. MORE FISCALLY RESPONSIBLE LINE BY GOVERNMENT Mr. DAVIS. I understand. My hope would be of course by the Government getting-taking a more fiscally responsible line, this would encourage business confidence, and people would be more willing to invest. It would lower interest rates, lower the rate of inflation. I think that would go a long way toward getting our economy back on a sound footing. So I think there would be some withdrawal pain as I suggested, but my hope would be there would be some offsetting factors. Frankly, I believe there would, and since the stagflation policy, guns and butter deficit, has been a disaster, I'm frankly for going back to the old time religion, trying something new. I think longterm history shows that's the better way to go. Senator SASSER. Thank you very much for appearing here, Mr. Davis. We appreciate you coming. Next we will call on Mrs. Linda Moynihan from the Tennessee Conference on Social Welfare. Mrs. Moynihan. STATEMENT OF MRS. LINDA CHRISTIE MOYNIHAN, EXECUTIVE COORDINATOR, TENNESSEE CONFERENCE ON SOCIAL WELFARE, NASHVILLE, TENN. Mrs. MOYNIHAN. Thank you, Senator Sasser and Representative Allen. It's a distinct pleasure to be here and as you can well imagine, I am not an economist representing the social welfare organization. But in relation to the Tennessee Conference, it is a private, not-for-profit organization comprised of volunteers as well as professionals and public as well as private agencies of the social welfare field. Consequently, our interest in the Federal budget and Federal program is quite diligent and we attempt to find out many things that are proposed. I do have a prepared statement I will submit to you, but I'll be as brief as I possibly can and attempt to answer any questions you might have. TITLE XX FUNDING The Tennessee Conference is extremely concerned over the social services funding classes that is quite apparent here in the State of Tennessee, specifically in relation to title XX funding. Now, this is the major source of funding for the comprehensive social services program in the State of Tennessee. SOCIAL SERVICES PROGRAM We feel very confidently that Tennessee has made tremendous strides over the past few years in this social services program. In relation to various methods that have been established by our State Department of Human Services in Tennessee, we have established some systems we feel are providing the most effective and the highest quality services that we can possibly present for the citizens of this State with a crisis in this funding area. INCREASE FUNDING We feel very strongly that the funds available for title XX must be increased. The ceiling that has been on has been on there for about 5 years now. We are most concerned that this has caused numerous problems within the State and within many of the citizens' families in the State of Tennessee. We feel that a $500 million increase is extremely necessary. POSSIBILITIES IN TERMS OF AMENDMENTS Now, it is our understanding that there are several possibilities in terms of amendments that are apparent, both in the Senate and in the House that concern title XX and other portions of our social services program. Senator Dole has an amendment he'll be sponsoring to increase the level over and above $200 million amount which has been utilized in 95-171 which is 100 percent day-care funding. Also, it's my understanding in the House that Representative Keys and Representative Fraser, I believe, have introduced a new bill in order to provide an amount of funding that would be approximately $250 million over the ceiling on an increasing base for the next several years. PROGRAM ESSENTIAL TO MANY Steps such as this are imperative both for the services to be provided to the citizens of our State as well as for sound planning at the State budgetary level. We have no ability at this point to project unless we can see it laid out in relation to these various programs the steps that will be coming down from the Federal level. This program is essential to many of our citizens, many abused, neglected children and adults, and also in day-care programs and many other social service programs that are very costeffective programs in terms of treating some of our social ills and social problems before they become far more expensive in later years by attempting to treat things after we've passed the point of no return. TITLE IV-B We also are extremely interested in title IV-B of the Social Security Act. This title has been under-funded for many, many years. It's the kind of program that picks up those children that fall between the cracks of our various and multiple categorical programs. SCEZASE I FUNDING NECESSARY Now, granted we have gone ourselves in a mess over the past wever, yen a mason to the different types of programs, the different types of ezag girelines and many other things, and tha program has enabled Tennessee to take care of many, many ch..dren that we could not presibly have served. However, we are only serving a portion of the need and increase in funding level is, as proposed in President Carter's budget, absolutely essential for the citizens of this State We have many questions in relation to some very specific things that are included in our formal presentation that we would appreciate your staff officers being able to look at for us, because it's very difficult for us to find out current information. WELFARE REFORM Also in relation to President Carter's welfare reform proposal within the Federal budget for this upcoming year. it looks as if there are planning funds for the actual employment part of President Carter's proposal. There are some concerns that exist within Tennessee and should exist. IMPACT ON STATE'S ECONOMY It is hoped that if this portion of the budget is funded, whether or not the entire program will be funded, that these funds can be viewed as pre-planning funds, and can actually also be used for each State to assess the impact of the various portions of implementing the programs that would affect this State's economy, this State as well as every other State. There are many questions in terms of the State's unemployment compensation laws in other sections that, as I say, I have presented in much fuller terms in relation to the statement I have prepared. BETTER JOBS AND INCOME AS FOCUS FOR PROGRAM REFORM We basically feel that the Conference does take the view of better jobs and income as a focus for reforming our many programs as a progressive move. We too long have labeled welfare recipients, people in need, as frauds, cheaters, and a lot of other labels. There are many needy citizens due to many circumstances, and the effect that a new focus may have on our entire system of service delivery, both at the Federal and State level, cannot help but be beneficial too. We do not say scrap this. We, of course, are not again saying let's spend all of the money that we possibly can in every area. Here in Tennessee we've made concerted efforts to show the effectiveness, to design evaluation systems at the local and State level that will enable those of you at the Federal level as well as State people, as well as local people, to determine the actual effectiveness, the impact upon the citizens of this State that many of these very, very necessary programs can provide. So I again ask you to give your most concerted efforts at looking at the social services systems that are contained in President Carter's budget. They are our most and best effective means of producing the remedies to many of the problems that we, ourselves, have |