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recommends that the new Budget Concepts Commission study the possible establishment of a national lending fund that would be responsible for all federal loan and guarantee programs but would not be allowed to subsidize transactions or to take risks on its own account. Instead, government agencies sponsoring loans and guarantees would reimburse the lending fund to compensate it for the subsidy portion of federal credit activities.

Capital Budgeting. We are opposed to proposals for a formal capital budget outside the unified budget. There is a strong risk that a separate capital budget would become a giant loophole for evading budget disciplines. However, we do favor substantially greater focus on clearer presentation of investment-type programs and on "capital budgeting" approaches within the unified budget.

Tax Expenditures. Tax expenditures are reductions in federal revenue attributable to provisions in the tax law that allow special deductions, exclusions, or exemptions from gross income, or that provide a special credit, a preferential tax rate, or a deferral of tax liability.

We are opposed to a ceiling on total tax expenditures in the budget resolution. However, we believe that in cases where the relevant Congressional committees agree that tax expenditure programs and regular spending programs serve similar purposes, such programs should be subjected to joint reviews when feasible.

STRENGTHENING CONGRESSIONAL BUDGET PROCEDURES

Even if Congress has the best possible information and the best possible conceptual framework for budget options, it still must face up to making and enforcing specific budget decisions. We believe that the evolutionary changes in the process introduced in recent years have significantly strengthened the process and should be retained. However, some operational changes need to be made. In particular:

The First Concurrent Budget Resolution should be made binding, thereby eliminating the need for a mandatory second resolution. Congress should, however, retain the option to pass a subsequent revised resolution if this appears necessary. The "elastic clause" should continue to be available as a needed means of providing a workable degree of flexibility in applying budget-process rules. The "outyear" targets in the budget resolution should be made binding. The shift toward the use of reconciliation in conjunction with the first budget resolution and its broadened application to existing entitlements and its implementation on a multiyear basis represent essential steps for making reconciliation effective. However, there should be some limitations on the scope of the reconciliation procedure, such as forbidding reconciliation bills to be vehicles for extraneous legislative proposals.

• Binding limits under budget resolutions, enforceable by points of order, should be tied to committee and subcommittee spending allocations, as well as to total spending.

Improving Congressional Timing. Because there are still many unresolved questions about two-year budget cycles, we do not favor an immediate across-the-board shift to biennial budgeting. Instead we recommend a gradual extension of the time period for budget and related decisions. This would involve active experimentation with two-year appropriations and other longer funding arrangements. If a high percentage of programs turns out to be suitable for two-year decision cycles, our recommendation would be consistent with an eventual move to a biennial budget. At a minimum, however, authorizing legislation should be for two years, and in some cases even longer.

We are opposed to any proposal under which Congress would be able to take up appropriations bills as soon as the deadline for the First Concurrent Budget Resolution has passed, whether or not the resolution has actually been approved by Congress. We believe that such a change would remove a major incentive for achieving timely budget resolutions and could significantly weaken the process.

To avoid unnecessary crises over continuing resolutions, we recommend that, with appropriate safeguards, a continuing but reduced appropriation be automatically put into effect at the start of the fiscal year for any account that has not yet received a regular appropriation.

Structural Realignments within Congress. While there should be careful study of possible realignments in Congressional committee structures and functions, the report is against any action that would abolish the House and Senate budget committees, undermine their essential functions, or otherwise weaken the budget process.

A Constitutional Amendment on the Budget. We are opposed to a constitutional amendment to balance the federal budget or to place specific limitations on budget outcomes. In our judgment, a constitutional amendment would be unworkable and would be likely to do more harm than good.

We believe that further strengthening of the Congressional budget process is a vital precondition for sound and effective fiscal and economic policies. Improvements of the present process along the lines indicated in this statement offer the best hope of bringing the budget under control.

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Vosed to approve the policy statement but submitted memoranda of comment, reservation, or dissent. "Nontrustee members talse part in all discussions of the statement but do not vote on it..

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RESEARCH AND POLICY COMMITTEE

Chairman

WILLIAM F. MAY

A. ROBERT ABBOUD, President Occidental Petroleum Corporation RAND V. ARASKOG, Chairman and President

ITT Corporation

ROY L. ASH

Los Angeles, California

HARRY HOOD BASSETT, Chairman,
Executive Committee

Southeast Bank N.A.

ROBERT A. BECK, Chairman

The Prudential Insurance

Company of America

JACK F. BENNETT, Senior Vice President

Exxon Corporation

"OWEN B. BUTLER, Chairman

The Procter & Gamble Company

*THEODORE A. BURTIS, Chairman

Sun Company

FLETCHER L. BYROM, Retired Chairman
Koppers Company, Inc.

PHILIP CALDWELL, Chairman
Ford Motor Company

ROBERT J. CARLSON, President
United Technologies Corporation
RAFAEL CARRION, JR., Chairman
Banco Popular de Puerto Rico
WILLIAM S. CASHEL, JR.'
Vice Chairman

American Telephone

and Telegraph Company

JOHN B. CAVE, Executive Vice President

and Chief Financial Officer

McGraw-Hill, Inc.

EMILIO G. COLLADO, Chairman

Grace Geothermal Corporation

RICHARD M. CYERT, President

Carnegie-Mellon University

D. RONALD DANIEL, Managing Director
McKinsey & Company, Inc.
JOHN H. DANIELS, Retired
Chairman

National City Bancorporation

FRANK P. DOYLE, Senior Vice President

Corporate Relations Staff

General Electric Company

W. D. EBERLE, President

Manchester Associates, Ltd.

WILLIAM S. EDGERLY, Chairman

and President

State Street Bank and Trust Company

Vice Chairmen

WILLIAM S. EDGERLY/Education and Social and Urban Development
EDMUND B. FITZGERALD/International Economy

RODERICK M. HILLS/Improvement of Management in Government
ROCCO C. SICILIANO/National Economy

*THOMAS J. EYERMAN, Partner Skidmore, Owings & Merrill

FRANCIS E. FERGUSON, Chairman Northwestern Mutual Life

Insurance Company

JOHN H. FILER, Chairman
Aetna Life and Casualty Company
WILLIAM S. FISHMAN, Chairman
ARA Services, Inc.

EDMUND B. FITZGERALD, President
Northern Telecom Limited

WILLIAM C. GREENOUGH, Retired Chairman

TIAA and CREF

PHILIP M. HAWLEY, Chairman
Carter Hawley Hale Stores, Inc.
RODERICK M. HILLS, Chairman
Sears World Trade, Inc.

ROBERT C. HOLLAND, President
Committee for Economic Development
JAMES L. KETELSEN, Chairman
Tenneco Inc.

PHILIP M. KLUTZNICK, Senior Partner
Klutznick Investments

RALPH LAZARUS, Chairman,
Executive Committee
Federated Department Stores, Inc.
"FRANKLIN A. LINDSAY, Chairman
Engenics, Inc.

ROBERT W. LUNDEEN, Chairman
The Dow Chemical Company

J. PAUL LYET, Former Chairman
Sperry Corporation

G. BARRON MALLORY
New York, New York

WILLIAM F. MAY, Dean
New York University Graduate

School of Business Administration ALONZO L. McDONALD, Chairman Avenir Group, Inc.

JAMES W. MCKEE, JR., Chairman

CPC International Inc.

E. L. MCNEELY

La Jolla, California

J. W. MCSWINEY, Director
The Mead Corporation

RUBEN F. METTLER, Chairman
TRW Inc.

STEVEN MULLER, President
The Johns Hopkins University

NORMA PACE, Senior Vice President
American Paper Institute

VICTOR H. PALMIERI, Chairman
Victor Palmieri

and Company Incorporated

C. WREDE PETERSMEYER
Vero Beach, Florida

DEAN P.PHYPERS, Senior Vice President
IBM Corporation

JAMES Q. RIORDAN, Executive

Vice President

Mobil Corporation

HENRY B. SCHACHT, Chairman
Cummins Engine Company, Inc.

RICHARD R. SHINN, Former Chairman

Metropolitan Life Insurance

Company

ROCCO C. SICILIANO, Chairman
Ticor

RICHARD M. SMITH, Vice Chairman

Bethlehem Steel Corporation

ROGER B. SMITH, Chairman
General Motors Corporation

ELMER B. STAATS, Former Comptroller
General of the United States
Washington, D.C.

CHARLES B. STAUFFACHER
Financial Consultant
Universe Tank Ships, Inc.

WILLIAM C. STOLK
Easton, Connecticut

WILLIS A. STRAUSS, Chairman
InterNorth, Inc.

WALTER N. THAYER, Chairman

Whitney Communications Corporation

"W. BRUCE THOMAS

*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent.

Vice Chairman of Administration

and Chief Financial Officer

United States Steel Corporation

SIDNEY J. WEINBERG, JR., Partner

Goldman, Sachs & Co.

ALTON W. WHITEHOUSE, JR., Chairman

Standard Oil Company (Ohio)

*FRAZAR B. WILDE, Chairman Emeritus

Connecticut General Life

Insurance Company

RICHARD D. WOOD, Chairman and
President

Eli Lilly and Company

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Chapter 2

Budget Concepts:

Improving The Information Base
For Budget Decisions

BUDGET PRESENTATION: THE NEED FOR
COMPREHENSIVENESS, CLARITY, AND CREDIBILITY

Adequate and timely information is indispensable for an effective budget process. This part of our statement examines the information requirements for sound budget decisions and key areas for improvement. MEANING AND PURPOSES OF THE BUDGET

Fundamentally, the federal budget is a plan or framework for making federal government spending and taxing decisions for a stated future period- at least one year but preferably a series of years. At the same time, it provides information about past government activities so that it can serve as a management as well as a planning tool. The budget should also be viewed.

as

• An instrument for setting priorities and allocating resources, both between the public and the private sectors and within the public sector • A fiscal policy tool focused on the impact of federal spending and taxation on incomes

• A tool for assessing the impact of federal government operations on overall financial flows and for measuring total government borrowing needs

• A tool for monitoring federal government performance

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