The participants in our dialogue have been discussing the Joint (House of Representatives and Senate) Economic Committee's hearing on the Mid-year Economic Outlook (1991), which has included several expert testimonies. At this point we are about to hear from Lee Hamilton and others.....

A- The ranking majority House member, Lee Hamilton offered his observations about the Federal Reserve's role. He said Federal Reserve chairman, Alan Greenspan is aiming for zero inflation and projects annual economic growth of less than 3.6 percent.

Congressman Hamilton speculated that the Fed's monetary policy was opposed to the administration's goals for growth, as expressed by Michael Boskin. He questioned whether a 3.6 percent growth rate could be achieved with the Fed's policy.

John Taylor (a Stanford professor and economic adviser to the President; see previous files for further discussion of Mr. Taylor's views) broke in to explain "Our forecast for nominal GNP growth in 1992 is 7.5 percent. The historical regularity between M-2 growth and nominal GNP growth is the one that economist focus on---those growth rates being very similar over long periods of time, of course, in recovery and downturns, the differential between the two can exist. With 7.5 percent being our forecast for nominal GNP growth that is actually one percent above the upper range of the federal reserve target which is 6.5 percent for 1992. That does imply some conditional velocity increase for the growth targets to be consistent with our forecast. . . ranges are always conditional on velocity."

Q- What is M-2?

A- Let's start with M1. M1 refers to the currency in circulation plus checking accounts, ATS, travelers' checks and so forth. M2 includes M1 plus savings and small time deposits, Eurodollars, overnight repurchase agreements and money-market mutual-fund balances. Then there is M3 which includes M2 plus large time-deposits, term repurchase agreements and institutional negative-only money market mutual-fund balances.

Q- I'm sorry I asked!

A- I thought Congressman Stephen Solarz of New York had an interesting comment referring to the credit crunch discussed earlier. He said the poor regulators get beaten up no matter what they do ---first they're too lax and now they're too tough---what a job!

Mr. Solarz pointed out that Senator Bentsen (Lloyd Bentsen, Democrative Vice Predsidential nominee) is attempting to change the formula used to trigger the provision of unemployment benefits so it relates to the unemployment rate as a whole; now the figures document the percentage of those that have unemployment insurance and those that don't have insurance aren't even counted. "We don't want to diminish our sympathy for them and our desire to help."

As things stand now, unemployment rates drop in the states where workers exhaust their benefits even though they remain unemployed and desperate.

Q- So much for statistics!

A- Michael Boskin (a Stanford professor and economic adviser to the President; see previous files for further discussion of Mr. Boskin's views)explained that the various states tighten eligibility benefits on their own.

When pressed he estimated that one million workers would exhaust their employment benefits over the year. Congressman Solarz suggested maybe it was three million and after a pause Dr. Boskin concurred.

Q- That's some difference!

A- The second figure also took those that had already exhausted their benefits into account.

Q- How much money are we talking about to extend unemployment benefits? A- You should have been on the panel---someone asked that and the answer was $4 or $5 billion.

Q- Since the trust fund has built up to $8 or $9 billion, why not simply extend the benefits? Why talk about cutting other programs?

A- You sound like Senator Sarbanes (see previous files). Did you really follow what Congressman Armey said about there being only I.O.U.s in government trust funds?

Q- I understand, but I don't accept. The contributions for extended benefits should never have been counted as assets in the budget. I think all employers would agree with my viewpoint, and apparently the Senator's viewpoint. When taxpayers pay in for a specific purpose and it gets swallowed by the gluttonous congress and it's insatiable desire to "do good" we don't want to understand---we don't want to take it anymore.

A- Well anyway the session ended with Senator Sarbanes dismissing Professors Boskin and Taylor telling them to go back and think about hurting Americans whose life's are being ruined.

Q- Wait a minute----I thought you said Richard Darman (director at the Office of Management and Budget; also see previous files) testified.

A- At another session, yes. California congressman, Bill Dannemeyer was one of the most interesting inquisitors at that session. He questioned Richard Darman (who he referred to as "the chief fiscal officer for the Bush administration) relative to the administration's mid-year assessment of the state of the economy.

Mr. Darman said, according to present projections the national debt for FY1992 "would rise from $3.545 to $4.012 trillion". Mr. Dannemeyer answered, "If my math is right, that's a total of $467 billion?"

Q-That's the increase in the national debt for one year ?

A- Those were Mr. Dannemeyer's next words. OMB director Richard Darman answered "That's right" to both questions. The increase in interest expense was determined to be $45 billion a year.

Mr. Dannemeyer said that "In February of 1991 the increase in "revenue of all types, 1992 over 1991, totaled some $74 billion, including $27 for social security, which we're not supposed to use to pay interest on the debt; that leaves $47 billion of increase, and now your figures show that currently, as of today, the projected income is down another $18 billion dollars, so the increase of revenue to the federal government, projected for FY1992 exclusive of social security will be $29 billion".

He went on to point out that the increased interest on the national debt is greater than the increase in projected revenue and that means we're digging a hole deeper all the time.

"Isn't it about time we faced up to the reality that the budget agreement that you helped develop and get adopted, has been a disaster for the economy of this country? When it was adopted you told the American public . . . the deficit for FY 1992 would be $229 billion that was last fall, now you're telling us. . . it's $348 billion---that's $119 billion more. We raised taxes by $160 billion over five years and we're supposed to get increase revenues for the federal government from the raise in taxes and that hasn't worked out. Don't you think it's about time for you to come to the congress and say if we want to have a realistic chance to salvage the decline in the real estate market in America we're going to have to reduce capital gains taxes. Wouldn't that be a constructive thing to do?"

Q- What did Mr. Darman say to that?

A- He said the administration has been trying to do just that and it doesn't get media coverage. A survey found that President Bush had urged a decline in the capital gains tax forty-two times in one month and it had only been covered once, according to Mr. Darman.

He told Mr. Dannemeyer "we have" 63 or 64 votes (to decrease) capital gains in the senate but procedurally they vote with the leader and it is stymied in the senate. The addition to the national debt projected now over the next five years is one trillion dollars and Mr. Dannemeyer expressed disbelief that it would have been $1.5 trillion without the 1990 budget compromise. Mr. Darman said "actually it would have been more."

That was when Bill Dannemeyer said facetiously to Richard Darman, "You are an amazing man, Mr. Darman. Just an incredible thought. The whole world is caving in on the fiscal policy you have crafted for this government, and you're sitting here in the attitude of equanimity with a smile on your face just as if nothing had happened. . . to be the chief architect of a fiscal policy which will result in an addition to the national debt of $448 billion in one fiscal year, is not my idea of responsible fiscal policy. . . you as the leader on fiscal policy should get confrontational with the congress of the united states over the issue of spending. . .to get attention of the American public on who controls spending around here. Some people belive that because the Republicans have the White House they control the level of spending."

He went on to suggest that Richard Darman should confront congressman Panetta, "even though he is such a charming man", because Panetta has the votes to deny the administration anything it wants to do.

Q- Leon Panetta is chairman of the House Budget committee, right? And also your congressman, I believe.

A- Right on both accounts. Mr. Panetta came to Mr. Darman's defense saying he was not alone in pushing for that budget compromise, to which Mr. Dannemeyer informed Mr. Panetta that 73 percent of the Republicans voted against it to which Mr. Panetta replied (and I quote) "Well that was regrettable, because that's about the only damn good thing we've done in budgeting for a long time."

Q- I thought I heard on the news or read that the Secretary of Defense testified before the House Budget Committee in July 1991.

A- As a matter of fact there was a hearing on July 31, 1991.

Q- Hearing on what?

A- Defense spending as contained in the FY1992 budget proposal--a second chance to make the 1990 budget agreement work.

Q- Defense will definitely be the main whipping boy in all budget disputes from here on. Don't you agree?

A- Absolutely, if the congressional hearing held by the House Budget committee on July 31, 1991 is any indication.

Q- Is my understanding of the budget agreement reached in the fall of 1990 correct? For the first three years of the five year plan the three categories---defense, discretionary domestic and entitlements---are required to meet certain targets on their own without dipping into another category.

A- That's essentially correct. The savings must occur in all three categories separately and individually. But, just as you said, to reach the targets for FY1995 and FY1996, appropriators already have their eye on the defense budget, hoping to cut a little more there to keep from trimming their own areas any further. After FY1993 the categories can be mixed.

Q- I must be psychic. Who else would have thought congress would consider rebelling against its own self-imposed straight-jacket?

A- Very funny. Secretary of Defense Dick Cheney testified saying that already 25 percent reductions have been scheduled for the restructuring of our defenses. He reiterated a statement made by Chief of Staff Colin Powell, that we are prepared to take the armed forces down to whatever the American people decree.

Q- The troubling part of our system is that even the inept actions by congress are viewed as if they actually are decrees by the American people. We have to remember when we elect our representatives that they stand-in for us, act for us and hopefully, act in the manner we would act, if we had thought out the problems. That's what a representative is!

A- Well I'll tell you, I sure was not happy with the way my representative conducted himself at the hearing, which he chaired. Immediately Leon Panetta asked Secretary Cheney, "Are we going to have to renegotiate the budget after the election?" He talked about the budget dilemma, as he sees it, and as he has always seen it throughout his career in congress.

Willis Gradison, the ranking member of the other party and Mr. Panetta's counterpart on the budget committee, stated that, "I don't think there's a dilemma at all."

The task is straight forward---you have to cut spending; something Willis Gradison and Bill Frenzel before him, have seen, while Leon Panetta looks concerned,and laments the "hard choices" and finds himself in "dilemmas". He saw pressure growing before the end of 1993 to take defense allocations and spend them on our rapidly multiplying domestic needs.

Q- He must be psychic too.

A- He works like crazy, but it is painfully obvious he is in over his head. He exemplifies the Peter Principle, having risen to the level of his incompetence.

Q- Don't you think that's a little harsh?

A- I've followed this process---this absolute nonsense---for years now. I've written two books on the subject and I am thoroughly disgusted with inertia, lies, trickery, deception and perhaps most of all---incompetence---and I'm not referring to any one person here, but pointing the finger at the process and the entire congress that is responsible for that process.

Chairman Panetta freely admitted to the $348 billion deficit anticipated for FY1992, the results of the first year of this new budget accord, and then he assured Dick Cheney that the deficit would be in excess of $300 billion in FY1994.

That year is significant as the next time it is possible for domestic spenders to dip their fingers into the military till instead of making those "hard choices" Leon Panetta wrings his hands over but never does.

Q- I thought "hard choices" was the code for taxes?

A- Well somebody besides Dick Cheney better start cutting spending in a serious manner. I know who it's not going to be.

Just see if you can listen to the following two quotes from the Chairman of the House Budget Committee and feel that we're in good hands in Washington, D.C.: "I just don't know where we're going to go?" and "I don't know where in the hell we go!"

But it was painfully obvious where he wanted to go when he went on to suggest that Mr. Cheney was being recalcitrant even though Mr. Cheney told the Chairman if he fired every person on the defense payroll from Colin Powell on down "you'd still have $100 billion deficit left".

Maybe every department and government program should follow the Pentagon's lead and take a 25 percent hit. Mr. Panetta chastised Dick Cheney suggesting that the carefully laid out six year defense budget should be more flexible and not "cast in concrete".

Q- That's because with the collapse of the Soviet empire everyone agrees we don't need a massive build up in the area of defense anymore.

A- We haven't been building up for years. Secretary Cheney had some interesting charts. One looked like a pitch fork leaning against a wall. The handle represented the decline of defense with one prong rising from that decline representing the projected appropriations for ongoing defense technology in outlaying years before the 1990 budget agreement and the downward prong represented the trimming in the outlying years required to meet the targets mandated by that agreement.

Another chart showed the decline in defense as a percentage of the national budget from 57 percent in the early 1950s to 18 percent slated for 1997.

Q- You'd have to go back to the 1930s to find defense as a percentage of the overall budget that low.

A-As a percentage of our GNP (gross national product) defense took 12 percent during the Korean war, 9.1 percent during the Viet Nam conflict, 6 percent during the Reagan years and is slated to be down to 3.6 percent by 1995-1996.

Another chart showed clearly defense spending in relation to other government spending. Over the past ten years defense spending rose 13 percent, domestic discretionary spending rose 187 percent and entitlements rose 448 percent. Another chart showed a rising base line representing the defense budget adjusted for inflation and another almost level line showing what actually was allocated for defense. There was a $410 billion difference between the two lines.

Q- I'm surprised by that inflation thing, because I thought everything in government was adjusted to inflation. That's how they get away with calling increases in spending, "cuts". But I'm not surprised or unhappy about the decreases in the defense budget.

The Warsaw Pact collapsed officially on July 1, 1991. The Warsaw Pact had 115 Soviet divisions on the German border poised to strike Western Europe which required us to have four and two-thirds divisions in Europe at all times with another five and one-third divisions ready to immediately join them.

Now we can get along with half the divisions we felt we needed when the Warsaw Pact was active. We're talking about going from 300,000 military people down to 150,000.

A- Dick Cheney told the Budget Committee how much of this and that was being cut back over a six year period.

Q- How much of what?

A- Men and women---members of the volunteer forces for one thing. He said the plan was to muster out 521,000 and to put that in prospective he reminded the panel that 540,000 were deployed in the recent Gulf conflict.

Q- It's no secret that many people go into the military, or any kind of government service because of the retirement benefits. A lot of people forced to retire early aren't going to be very happy about being pushed out.

A- Even though many of these "volunteers" won't reach their twenty years of service, the Secretary wanted to make sure they are treated well as far as benefits go when they are released over the next five years.

That will not be cheap. Pay levels had already fallen eleven percent behind comparable pay scales in the civilian sector. He also wanted to make certain the smaller force that is left is a quality force with good training, good facilities, good equipment, plenty of spare parts, better pay and benefits and with a high morale.

Q- I heard that about sixty percent of the volunteer force is married which means housing and facilities for children is an expense that can't be short-changed.

A- Speaking of volunteer---Secretary Cheney was pretty incensed that congress wouldn't allow any cuts in the Guard and Reserve while taking down one-third of active forces. He had some good points about how they interacted.

Q- I would think that congress would realize it doesn't have time and certainly doesn't have the knowledge or even the facts to micromanage everyone else's department.

A- Besides saving on personnel, instead of going ahead with 23 Trident submarines the defense department is stopping with 18; they're going with fewer ships and aircraft carriers than previously proposed--- and tanks.

Q- They had an inventory of 8,000 Abrams tanks and only lost 18 in the Gulf. I guess they can make do with 7,982 without building more. Now if they'd only cut back on those expensive B-2 bombers.

A- Cheney is holding out for 75 B-2 bombers as planned and I don't see how you can argue with his reasoning. We've invested ten years and $35 billion in developing the B-2 and have 15 aircraft to show for it now. If we spend the other half of the money we get 60 more aircraft.

Q- That's like getting a 75 percent discount or getting the first dozen for one price and getting an additional four dozen for the same price. It's like saying buy your first 15 for $35 billion and with the second purchase of 15 they'll throw in an additional 45 B-2s for free!

A- Spoken like a true American consumer.

Q- Where's the bargain in the F-22 fighter and the SDI?

A- The bargain is in what the technology saves on a real battlefield, but I didn't hear anything about dollar savings in the short-term there. In fact in the FY1991 budget proposed by the Bush administration, there was a 22 percent increase for SDI over the previous year which amounted to, as these things go, a mere $4.6 million.

The argument used at the time was that we spend $300 billion to defend our interests around the world, but we spend nothing to shield our own land. SDI was considered top priority.

Q- Don't you think it is possible to cut more out of the defense budget?

A- Of course it's possible but members of congress cry bloody murder when Secretary Cheney tries to close bases, shut down manufacturing facilities and reduce troops--in their areas.

Q- Congresswoman Pat Schroeder addressed the AFL-CIO at the end of July 1991 and made a big deal about base closures in this country. She won the hearts of the working men and women in her audience when she claimed military base closings were decimating our communities and putting people out of work. She got all kinds of applause and cheering when she asked, instead of closing bases at home, why don't we close bases overseas.

A- Those are the kinds of antics that make me, and probably everyone else, despise politicians. It seems inconceivable that serving on the Armed Services committee in the House, as she does, that Patricia Schroeder could be unaware that 275 overseas facilities have been slated for closure.

In fact 14 percent of our overseas bases are being closed as opposed to the 9 percent slated for closure at home as of July 25, 1991 when she was giving her address.

That kind of grandstanding falls somewhere in the range of out and out lying, distorting, misleading or ignorance and I would much prefer to believe the later---although I don't!

Q- I heard that speech and Congresswoman Schroeder was also cheered when she suggested we curtail foreign aid and keep those dollars here to help Americans in need.

A- Foreign aid has always been a target of the general public even though it's portion of our budget is relatively miniscule. The U.S. government provided billions of dollars in taxpayer-guaranteed credits (for grain purchases) just before Iraq invaded Kuwait.

At the end of 1990 the Bush Administration decided to do the same thing with the Soviet Union, with guarantees of from $1 billion to $3 billion in farm credits. Additionally the Soviets will have access to US Export-Import Bank loans, equal tariff treatment on their imports and possible investment insurance.

However, pouring money into a still unreformed command economy alarms many who believe that financial assistance may well impede rather than accelerate fundamental economic reforms.

Q- Where is the incentive to cut back on the Soviet military-industrial complex?

A- Exactly. Our assistance surely strengthens the control of central authorities at the expense of the fifteen more democratic republics. But the larger question concerning opponents of aid revolves around our priorities. What about homeless Americans, starving Africans and struggling democracies in Eastern Europe? What about our own deficit? Already American tax dollars have been unable to stretch to cover needs at home.

Q- What about the United Nations?

A-According to a Wall Street Journal article written in the fall of 1986 by Kishore Mahbubani, Singapore's Ambassador to the United Nations, the United States, at that time, was being subsidized at the United Nations by other member countries.

Q- How did he come up with that accusation?

A- U.N. assessments are made on a complicated set of calculations based on a country's GNP (gross national product) and population. As "the richest nation in the world" the U.S. should have been shouldering 28 percent to 29 percent of the U.N. budget, according to Mr. Mahbubani, but because of a ceiling written into the U. N. charter the U.S. was only assessed 25 percent. Mr. Mahbubani's logic was curious. Apparently he wanted us to believe a ceiling on the amount required of the largest contributor (U.S.) amounts to a special preference.

Q- Right! I would imagine all other 158 nations already enjoy the protection of that same ceiling.

A-By the way, these were the assessments made on the five top contributor nations in 1986: (In millions) U.S. $210, Japan $76, USSR $71, West Germany $58 and France $45.

In 1946 there were 1,546 U.N. employees. Forty years later, according to Jose S. Sorzano, former Deputy U. S. Representative to the U.N., "The entire Secretariat employs 52,000 civil servants, compared with a total of 4,500 in the State Department." Salaries are about 80 percent of the U.N. budget. There are 28 under secretaries-general; the sort that retire with a lump sum of $350,000 after serving 30 years, all the while enjoying plush salaries.

Q- Talk about waste!

A- The waste fighter himself, Columnist Jack Anderson reminds us that paper work at the United Nations is horrendous. Each page of output must be translated into six languages so it is no wonder each page ends up costing $588. And, as in all bureaucracies, employees are eager to churn out the paper work in order to justify their existence and their high salaries.

The regular budget has more than tripled in the past ten years thanks to the proliferation of smaller less developed countries whose goal is to use the U.N. as a political channel for economic assistance.

These countries, as a matter of course, inflate the organization's outlays by voting expensive add-ons with no special regard to those larger developed countries who must supply the cash.

Q- Sound vaguely familiar.

A-Growth without proper coordination meant costly duplication of programs.

Q-Sounds even more familiar!

A- More boards, more committees, more commissions, more task forces, more meetings inevitably mean more documentation and more employees. More, in the words of a member of the Secretariat for 18 years "people running around doing nothing."

Q- I've heard critics of the U.N. say we are purchasing the rope and letting the U.N. hang us with it. We supply the most money and reap the most criticism.

A- There has been some truth to their contention. The U.N's Department of Public Information publishes two periodicals and over two million documents on an annual basis, operates 66 information centers and broadcasts on Radio Perspective to 167 countries in 25 languages. Studies have shown a distinct anti-American bias in all this information.

Q- Why pay to be trashed?

A- On the other hand, supporters point out that the U.S. has highlighted violations of human rights by Cuba and by the Soviets in Afghanistan and the leadership in Iran.

Q-I personally think the U.N. might be a good place to get serious about our budget deficit.

A- Well, members of congress agreed with you and on October 25, 1986 they decided to ignore a little more than half our bill and allocated only $100 million towards our assessed dues.

Q- That was the year of our historical budget deficit of $221 billion.

A- No doubt that had a lot to do with it. Anyway we got the attention of the United Nations because on December 19, 1986 the General Assembly passed new legislation regarding budget proposals. The CPC (Committee on Programs and Coordination) is a 21 member committee charged to provide recommendations on the size and limits of the U.N. budget, the priorities of the U.N. and the problem of "add ons". By the terms of the new legislation, major donors to the U.N. will have an influence on the CPC. Since decisions must be unanimous, each member in effect now has a veto.

Q- So we paid up?

A-Yes, but at least we got some concessions for our delay.

Q- Pay! Pay-----all we do is pay! When you add state and local income, property, sales and all other taxes on top of federal taxes, the average American has little more than half his income to budget for his own personal priorities. How does the tax bite on American citizens compare with the taxes imposed by other countries on their citizens?

A- Taxpayer's organizations claim we work for government until May 8th every year. Some say serfs in the middle ages had more time to work for themselves. Not surprisingly the socialized Scandinavian countries that offer the most services also impose the highest taxes. Most industrial countries rushed to follow our lead when we cut marginal income tax rates in this country via the 1986 tax reform.

Q- I've noticed that "bold" is the code word for raising taxes.

A- Or "hard choices". A couple years ago "black box" was D.C. lingo for unspecified but necessary cuts. There was a lot of speculation about the black box used in coming to terms with the FY1990 budget. Twelve percent of the budget and sixty percent of all programs were in that black box. It was rumored to provide revenue from cuts in either agriculture, the administration of medicare or from postal reforms with some people betting on all three.

Q- That was the year everyone was watching two minute segments about the budget process on the nightly news as deadlines came and went.

A- There was finally a 2,000 page reconciliation bill accompanied by report of 15,500 pages. Too many irrelevancies and hitchhikers making the bill hardly recognizable.

Q- That's unconscionable!

A- A lot of our representatives thought so too and they spoke out on the House floor.

Bill Alexander of Arkansas wanted to submit a bill to redefine the meaning of the term "deficit". He wanted it to include the federal deficit--not camouflaged by the social security trust fund surpluses.

Harold Rogers of Kentucky listed as gimmickry, "complex baseline projections, pay-day shifts, rosy economic forecasts, off-budget accounting tricks, trust fund surpluses to mask the true deficit and so on."

They talked about medicare payments to health care providers which were delayed two days to produce a paper savings of $500 million. Then payments were suspended at the end of FY1990 for an additional five days and another paper-savings of $2 billion. And those agriculture deficiency payments were moved back to FY1989.

Q- What were the "reforms" at the post office?

A- Off-budget postal service payments to the Department of Labor for the workers compensation fund were speeded up a few days so that they fell in FY1990 rather than FY1989. A user fee on employers who maintain pension plans for their employees, which Mr. Rogers claimed didn't belong in this bill.

The problem, according to Mr. Rogers, was that Gramm-Rudman focuses on one year targets rather than overall deficit reduction. He was concerned about our dependence on foreign investment to finance our spending and about the expansion of medicare which he saw expanding by $8 or $9 billion over the next 4 or 5 years.

William Clay of Missouri endorsed pension provisions in Title 3, pointing out that pensions are workers' problems, not tax problems. He was incensed that employers prematurely terminate pension plans to recover excess monies and reminded his colleagues that pension plans supplement social security and are not meant to benefit corporations.

He pointed out that since 1981 $21 billion worth of pension money had been converted to other purposes. He advocated reform to prevent pension reversions from continuing to deplete our nation's capital and savings.

On the other hand, Illinois congressman, Harris Fawell said employees were being hurt due to incessant tampering by Congress. Employers are leaving the defined benefit system and shifting risk to the employee. Likewise Cass Ballenger, a businessman and representative from North Carolina, set up a pension plan for his own employees.

He spoke from experience when he told his colleagues that these "amendments are going to force underfunding of current plans and destroy incentive for new plans." With ERISA (Employee Retirement Security Act of 1974) he changed his own employees to an ESOP (employee stock ownership plan).

He bought into my preachment that people always act in their self interest when he cautioned that if an employer can't get out any excess funds he will make darn sure he doesn't put any in and the PBGC will take the brunt. (PBGC=Pension Benefit Guaranty Corporation--government insurer of private pension plans=YOU!)

Marge Roukema of New Jersey was also against the pension amendments, claiming they would disrupt private plans and change ERISA law. In her words, "These amendments violate the bipartisan nature of pension law." She was alarmed that Non-germane amendments were hitching a ride on a budget agreement.

Q- I know her. She's a great watchdog for business interests.

A- Business should be everyone's interest and so should fairness. Her debate got away from the budget but in a way that was the point---the proposal she was so up in arms against had nothing to do with the budget business at hand. In other words it was not germane.

Q- You've got me curious. What made her so mad concerning those pension amendments?

A- She was trying her darndest to prevent the imposition of more regulation and costs on the backs of small business people. She warned against an amendment which would require employee representation on any board of trustees, against prohibiting reversion to employers of excess pension monies and against new ERISA report filing fees of $200 per each employee, which she said was another tax!

Mrs. Roukema claimed no advance notice was given of hearings on these reforms and that to change the present fiduciary pension laws would put labor management relations in a turmoil. She insisted that what was being proposed was a very radical change and she predicted if these amendments became law, the public would be more enraged than they were when they got wind of the catastrophic-health-care bill.

William Ford of Michigan expressed his resentment over quick policy decisions tailored to fit specified numbers. He said federal employees had given already and they wouldn't concede any more. He is chairman of the Education and Labor committee which deals with civil service and has, he said, saved $1.7 billion by taking post office off-budget and restricting lump-sum withdrawal of retirement benefits.

Q- I've heard the term "point of order" used in connection with the budget. What does it mean?

A- "Point of order" refers to a Senate rule whereby a Senator can declare legislation (usually in the form of an amendment, which is tacked on to original legislation) to be non-germane, unrelated, or extraneous. Do you remember the context in which you heard the term?

Q- The example I'm thinking of occurred a couple years ago. I remember a point of order was raised by Senator Robert Byrd of West Virginia with regards to the capital gains reduction proposal and I remember at the time wondering what he meant.

A-That proposal was tacked on to the Senate reconciliation bill in the form of an amendment advanced by Senator Packwood of Oregon. By raising the point of order the Senate avoided bringing the capital gains legislation to a vote. Senator Byrd was aware that it would have garnered 57 votes but reasoned it would take 60 votes to overturn his point of order. The House, for better or worse, does not have such a rule.

Q- Isn't it better to raise taxes now rather than pile up debt for future generations to deal with?

A-The 1983 social security reform raised the payroll taxes significantly, precisely to avoid placing a gigantic burden on future workers. Unfortunately, as it stands now the system is destined to collapse of its own weight. Those widely touted surpluses will be exhausted quickly around 2020 and young workers can reasonably be expected to rebel.

Q- Wouldn't you say whenever people talk about putting burdens on future generations that they are really referring to the social security system?

A-I think you're right. Social security and medicare are the programs that switch the largest burden onto future generations. The Democrats have long counted those programs as special feathers in their cap, whereas the Republicans can (but they don't dare because it would be unpopular) point to their own warnings over the years that the programs would become too large, too costly and even unconstitutional in the promises they make to be kept by future generations.

Q- It's hard to know who to believe with the Republicans blaming the Democrats and the Democrats pointing a finger at the Republicans.

A- I've followed this government spending issue closely for several years now and I have no hesitation in stating that over and over the Democrats have initiated costly new programs and overridden Republican opposition to more and more spending.

Q-But at least they were willing to raise taxes (also unpopular) to pay for the spending.

A- Some of them---sometimes--- and in this they were constantly blocked by the Republicans. American voters played one party against the other and got what they asked for---expanded programs without the pain of paying for them---in other words the national deficit.

Let's put the blame where it belongs. The congress will have an incentive to trim budgets only when the public is ready to take the deficit seriously.

Q- Going back to our social security discussion just for one minute. If contributions to social security via the payroll tax are kept in a special trust fund, at least on paper, does that money collect interest--also on paper? If so, who pays the interest?

A-The government pays interest which of course means the taxpayers .

Q- If the government pays the interest earned by the social security trust funds, are those dollars treated as income or out go by the government?

A-That is an interesting question. If the trust funds were kept in a private bank, for instance, of course the interest paid by the government would be entered as a government liability. But since, in effect, the government is paying itself, the interest earned by the social security trust funds is treated as income under intra-government transfers.

Q-Isn't that deceitful? It must skew the deficit figures.

A- Many people believe the current accounting practices of the federal government are indeed deceitful. Accounting gimmicks have been used in attempts to meet the targets mandated by the Gramm-Rudman legislation.

The push to take social security and other trust funds off the budget came to a head at the end of 1990 and the social security trust funds will not be used to mask the deficit in the FY1992 budget proposals.

Q-How much larger would the budget deficit be if trust fund interest was not treated as extra income?

A-The build up of social security reserves and interest accrual accounted for a phony $70 billion on the plus side of the accounting ledger during FY1989. If one were to count the Highway and other trust funds over the past 10 years there would be a minimum of $170 billion in concealed debt. This would show more accurately the amount by which our deficit is increasing.