Let me conclude by reminding everyone that the process we have now would look a lot better if a $300 billion deficit was not staring us in the face. But we should also keep in mind that the process is not responsible for that $300 billion deficit. In fact, I would argue that it has limited the size of that deficit.

Reforms might be desirable, but we should not pretend that procedural changes can succeed where politicians have feared to tread. Furthermore, we do not want to lock into concrete procedures that might be suitable for a situation of extreme disequilibrium if we think that at some time in the future, after we have adopted suitable policies, the deficit might not be a front-page problem.

Changes to the budget process should be made only systematically and only carefully. Above all, I would urge you to avoid outcome focused reforms which might have the superficial appeal of addressing the deficit problem head-on, but in fact have a very poor track record of success.

That completes the summary of my statement and I will be glad to answer the questions that the members of the committee might have.

[The prepared statement of Dr. Reischauer is printed in the Appendix.]

Chairman HAMILTON. Thank you very much, Dr. Reischauer, for an excellent statement.

We will begin with questions.

I will just ask one question with two parts to it. I would like you to comment.

I guess the single most frequent complaint you hear among Members about the budget process is that it is just too complicated and too complex. The question is: Are we kidding ourselves if we think we can make this process simpler? What do you suggest with regard to the criticism of complexity of the budget process?

The second question relates to the manipulation of revenue and spending projections. Some say that figures are deliberately manipulated in order to get outcomes, economic assumptions, rosy scenarios, and all the rest of it. Is that a problem today? Do you feel that the CBO is sufficiently insulated from that kind of manipulation of the figures? What comment do you have with respect to the manipulation of the budget figures?

Mr. REISCHAUER. I think the criticisms of the budget process with respect to complexity are true and probably unavoidable as long as we are in a difficult period when the budget situation is quite far from where we would like it to be. What we have had to do is add on to a simpler process that was adopted in 1974 a series of restraints and limitations to keep the discipline that we desire with respect deficit reduction. This has made the process tremendously complex.

But we have to remember that our Government is tremendously complex. Our accounts are tremendously complex. The_Congress and how it operates and interacts with the Executive Branch is filled with complexities. It would be naive to assume that some simple process could reign in or control this very complex institutional setup

With respect to the manipulation

Chairman HAMILTON. May I interrupt you there?

Mr. REISCHAUER. Sure.

Chairman HAMILTON. You don't make, then, any suggestion to us to simplify the process to reduce its complexity?

Mr. REISCHAUER. I think it is terribly important for the Congress to have some mechanism for looking at the budget as a whole and controlling the budget as a whole. There is then a question that lies within the purview of this committee, but one on which I will not comment, as to what extent the other actors in the budget process the authorization committees, the appropriation committees are regarded as separate and distinct entities. There are ways of simplifying this, as other witnesses have told you. Certainly, I wouldn't want to weigh in on that.

With respect to the various little kinds of complexities that have crept in, particularly since 1985-the scoring rules that we have and all of the points of order-these are really restraints to keep the Congress and the Executive Branch from skirting around the deficit limits that we have placed on ourselves. Should the budget get closer to balance to a point where we're not concerned or obsessively concerned about the deficit, I would think most of these aspects could be done away with.

With respect to your second question, which had to do with the manipulation of economic forecasts or spending estimates of various kinds, I don't think the Congressional Budget Office has ever been accused of that. We have generally been viewed as an outfit that calls it like we see it. One has to remember that our incentive structure is to be as accurate as possible. That is all we have going for us. We are not trying to promote a policy.

We are judged on how accurate our economic forecasts are. By and large, we have been more accurate than others, although I wouldn't want to make a great deal out of that because we haven't been as accurate as I would have hoped.

The same is true with respect to our budget numbers. I think quite correctly the Congress and the media and the academic community have relied on our estimates as an unbiased look at these numbers. We have not been right on the mark here, either. This is a very complicated area and it is not easy to make these estimates, particularly for many years out.

Chairman HAMILTON. Thank you.

Senator Stevens?

Senator STEVENS. Thank you, Mr. Chairman.

Picking up just a little bit on that, I note that you haven't made any recommendations for changes in the basic process. I have heard some criticism recently of the scoring process. I think we applaud the President for having eliminated the potential conflict between the Office of Management and Budget and the Congressional Budget Office. But you, then, were the one that scored the Social Security increase tax from 50 percent to 85 percent over the amount received in Social Security payments for those who make more than $32,000. You scored that as a spending reduction. Mr. REISCHAUER. No, we didn't.

Senator STEVENS. That is the way it came to us. It has been defended as a spending reduction.

Mr. REISCHAUER. You are referring to the President's plan. And how he chooses to portray his numbers is his decision. Yesterday,

we released our first-cut preliminary reestimates of the President's budget. Those revenues are in the revenue category as they have been historically in the revenue category.

Senator STEVENS. I apologize. I thought those were yours. They were given to us as being CBO scores.

Mr. REISCHAUER. The actual numbers that the Administration used the size of those numbers came out of a volume that we published a year ago. So in a sense, the magnitude of those numbers they could say these are CBO numbers, although they were outdated CBO numbers. But in no sense did we refer to them as reduced outlays or offsetting collections or anything like that. Those are

revenues.

Senator STEVENS. I think there is a sense of frustration that develops as Members of Congress particularly this Member at least, not having served on the Budget Committee that the Budget Committee's rules are there to be disobeyed by those who understand them. It really came at us as a way to impose discipline on the Congress overall in terms of the budget process, but there is always a way around.

We are seeing it now in terms of the proposal to put the health care plan in the reconciliation process, to put in the scope of reconciliation things that are far beyond the original scope of the Budget Act.

Are you telling us that you think there is no reform necessary in order to make the Budget Act work as it was originally intended?

Mr. REISCHAUER. Basically, I am saying that what we have right now in the Budget Enforcement Act, on top of a bitten piece of Gramm/Rudman and the Congressional Budget Act of 1974, is a system that is operating pretty well under some very adverse sets of circumstances. I would hope that the parts of the Budget Enforcement Act that I think the majority of Members agree have worked be extended, as the President has suggested, and that they incorporate in them whatever decisions you make about increased taxes and reduced spending. In other words, the discretionary caps should be extended for 5 years, as the President suggested, and the pay-as-you-go discipline extended as well.

There are a few little aspects of the current process which I think have allowed you to avoid some painful decisions that I personally would like to see tightened up, but these are really minor kinds of technical changes and they would feed right into the Chairman's concern about an even more complex process.

Senator STEVENS. Just one last question, Mr. Chairman.

I am an appropriator. I was the Chairman of the Defense Subcommittee for 6 years and now I have been ranking member. When we get down to the budget process and how it applies to us, it is outlays, right?

Mr. REISCHAUER. Budget authority and outlays.

Senator STEVENS. Budget authority really doesn't bother appropriators that much, frankly, because it is already settled by the budget resolution.

Mr. REISCHAUER. The budget authority for the last 3 years hasn't affected you very much because the aggregate spending caps that were set in the 1990 law had a certain amount set for defense. But this year, for fiscal year 1994 that all changes and defense budget

authority can compete with non-defense budget authority. This is a decision that is made by and large within the Appropriations Committee when it settles on the 602(b) allocations. The Budget Committee makes a statement on this, but it is not a statement that the appropriators have to abide by.

Senator STEVENS. But respectfully, I am going beyond that. Even before we had that agreement, we had limits and we had budget authority. Normally, budget authority drives appropriations for a series of years and you actually have a bow wave so that the outlays are in excess of the current year's budget authority because that is dealing with future years when we are really funding ongoing projects to a great extent.

What I am saying is that when it gets to the Senate, the Senate bill is affected by outlay restrictions and points of order that don't apply in the House, they don't really apply to other subjects other than defense, and it becomes much more difficult to comprehend how to deal with the overall budget process and at the same time comply with the authorizations that we get from the authorizing committee.

I am saying that it does seem that process is tilted toward the Senate in terms of points of order. There is greater discipline in the Budget Act in the Senate than there is in the House, really. The House has a different discipline through the Rules Committee. I am not criticizing that, but when you get to the Floor in the Senate, the discipline is through points of order and the ceilings that are there and the super-majority needed to change the recommendations.

I think we ought to back up and look at this Budget Act and see if we can't get a level playing field and get those decisions made earlier in the Budget Act so that everyone knows what the parameters of the system are. Maybe I am wrong, but we seem to face those parameters in terms of defense on the Floor while other programs face those parameters in the budget process and in the authorizing committee.

Why is that?

Mr. REISCHAUER. The aspects that you're talking about are the rules of the Senate rather than the law of the land and they can be changed by the Senate, I believe, without the signature of the President.

Senator STEVENS. I think super-majority and the points of order come from the Budget Act.

Mr. REISCHAUER. But these are the procedural restraints that the Senate has put in to be its rules of action. With respect to your complaints about budget authority and outlays, I sympathize with them. I think a good case can be made that the 1990 Budget Act, in a sense, over-restrained. We put caps both on budget authority and outlays. Those caps are often not in coordination with each other. So one would bite before the other would bite. This might be more restraint than is needed.

The bread-and-butter decisions really are those that affect budget authority because budget authority then turns into outlays at some time in the future. Because there has been this disparity or lack of coordination between budget authority and outlays, the Congress has engaged in some questionable behavior such as having obliga

tion delays and saying that this agency or that agency can't obligate funds until the last day of the fiscal year so there will be no outlay impact of them. That is certainly not the kind of behavior you want to encourage through your budget process.

Senator STEVENS. Thank you very much, Mr. Chairman.

Let me congratulate you, Mr. Reischauer. I do think in the years that we have worked with the CBO that God has given us some people who are willing to sit back and dispassionately look at some of these issues and be able to maintain a semblance of balance so that some of us don't have to get to the Floor and argue the same principle.

I thank you very much for your help.

Mr. REISCHAUER. Thank you. That is a very nice statement from you.

I would just like to say one thing on behalf of the Congress of the United States. The Congress of the United States is a highly political body, and yet it is the only legislature anywhere in the world that has created, fostered, and protected non-partisan objective sources of information. I am not just talking about CBO. I am talking about GAO, OTA, and the other support agencies.

We have a constant stream of foreign visitors asking us what we do and how we do it. They always leave with their mouths totally open and they can't believe that the Congress doesn't exert political pressure on us to skew the numbers one way or the other, even though what we do makes your job harder. Inevitably, it does.

This is something which you should be quite proud of as an institution. I think it actually has improved the credibility of the Congress with the media and with the American public that you have been perceived as willing to hear the bad news from your own employees, in a sense.

Chairman HAMILTON. Mr. Spratt?

Mr. SPRATT. Thank you, Mr. Chairman.

Dr. Reischauer, thank you for your testimony.

As I understand it from your testimony here, you don't see much to be gained by going to a biennial budgeting process. It doesn't appear, in your opinion, to necessarily lead us to any easier or simpler path toward budgeting or to producing Federal outcomes.

Mr. REISCHAUER. I think that is certainly the case now, particularly when we are in a period of budgetary disequilibrium. One could make a stronger case if we had a balanced budget or a budget that was closer to our liking. In that kind of situation, one might make a case for either forward funding more programs or funding the ongoing types of programs which aren't expected to have large changes year-to-year on a biennial basis.

But when we're in a situation where we know we have to cut back and we have no agreement on exactly what it is we're going to cut back, and we know the circumstances might be tremendously different 12 months from now than they are now, I don't think you want to lock in place decisions over

Mr. SPRATT. In a period where we're trying to bring spending down and to reach deficit reduction targets, we probably worsen the situation by having more forward budgeting and longer term budgets. We are better off to come back to it year after year.