Nick Smith

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, I would suggest to the previous speaker, learn the facts and that would enhance everybody's conclusion of what is best for this country. I am usually not critical on a partisan basis. But looking at what some of the Democrats have suggested, looking at what Secretary Rubin looks into that television camera and tells the American people is less than the honest truth. I think it is important, No. 1, that we end up with a balanced budget in this country. I think it is important that we use the single, sole leverage that we have, and that is holding back the vote on yet again increasing the debt ceiling of the United States of America. We have increased this debt ceiling 77 times since 1940. It has become a matter of tradition. I say it is enough. I say let us do what was done in 1985 and 1986 during Gramm-Rudman. Let us do what was done to President Bush in 1990. Let us use the debt ceiling vote as leverage. I would ask everybody to attend the Joint Committee on Policy meeting tomorrow at 10 a.m.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, on May 31, the Michigan Legislature adopted a resolution commending the Defense Reutilization and Marketing Service [DRMS] for its exceptional success fulfilling its mission of selling and reusing surplus property from our armed services. DRMS has instituted reforms over the last several years which have vastly improved the agency's efficiency and have allowed it to attain an operating profit. I join the Michigan Legislature in its praise of DRMS and ask that the text of the resolution be printed in the Record as follows: Senate Concurrent Resolution No. 109 A concurrent resolution to recognize the success and innovations of the Defense Reutilization and Marketing Service and to memorialize Congress to encourage continued reform efforts throughout the Department of Defense and all of the federal government. Whereas, In response to the call of officials and citizens alike, the United States Department of Defense, through the Defense Reutilization and Marketing Service, has achieved remarkable success as a pilot project committed to bringing sound business practices to a worldwide governmental operation. This initiative, which has been made more important by the reorganization of military facilities and base closures around the world, has been nominated for major recognition through the Innovations in American Government program coordinated by the Harvard University Kennedy School of Government; and Whereas, The Defense Reutilization and Marketing Service is charged with the mission of selling Department of Defense assets, reutilizing resources, transferring property and materials, and encouraging the recovery of metals. With the ever-increasing speed of change in technology and the unique demands of military preparedness in our volatile world, the task facing the Defense Reutilization and Marketing Service is a substantial one, representing enormous sums of capital. Fittingly, the Defense Logistics Agency of the Department of Defense selected the Defense Reutilization and Marketing Service as a pilot project under the Government Performance Results Act of 1993. Since that time, this operation has constituted a wonderful example of reinventing policies and attitudes in government; and Whereas, Michigan has been the recipient of numerous benefits through the efforts of the Defense Reutilization and Marketing Service. Products from around the world have gone to Michigan schools, youth groups, universities, museums, local units of government, and police departments. Several million dollars worth of materials, ranging from camping equipment to heavy machinery, have been put to good use; and Whereas, The Defense Reutilization and Marketing Service responded to its challenge with true business strategies of putting customers first, improving processes and the use of technologies, empowering employees to get results, and meeting customer requirements at a reduced cost. With emphasis on maximizing return to the taxpayer, the service has achieved remarkable success in increasing total assets by nearly 200 percent and attaining self-sufficiency with an operating profit of $17 million. These impressive figures represent a wonderful beginning. Most importantly, the success of this effort has generated a rethinking of all levels, with employees adopting attitudes consistent with those found in a sound and productive business. We hope all governmental agencies will follow this lead; now, therefore, be it Resolved by the Senate (the House of Representatives concurring), That we recognize the achievements of the Defense Reutilization and Marketing Service in being recognized nationally for representing the reinvention potential that exists within the federal government; and be it further Resolved, That we memorialize the Congress of the United States to continue to encourage the progress of the Defense Reutilization and Marketing Service and similar programs in all governmental units; and be it further Resolved, That copies of this resolution be transmitted to officials of the National Performance Review, the Department of Defense, the Defense Logistics Agency, and the Defense Reutilization and Marketing Service, the President of the United States Senate, the Speaker of the United States House of Representatives, and the members of the Michigan congressional delegation.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Chairman, I thank the gentleman for yielding. Mr. Chairman, let us talk about this maybe in a little more simple terms. The fact is is that the Democrat alternative has more taxes, has higher taxes than the Republican proposal and has higher spending than the Republican proposal. If the gentleman is suggesting that we should take those taxes and cut some of that tax decrease out and use it to balance the budget faster, I think that would be one question; but to go back to the same old story of higher taxes and higher spending is not the way we need to go. There was a comment that used the word draconian. Mr. Chairman, what we are doing is we are cutting 10 percent out of our budget. A lot of families in the United States cut 10 percent out of their budget in 1 year. We are taking 7 years to cut 10 percent out of our budget. It is ridiculous. The spending of this Congress is out of shape, it is out of style, and let us get back to the real world and let people keep their money in their pockets.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Chairman, I thank the gentleman for yielding me time. I think the question is to this side of the aisle, to the American people, do we want to balance this budget, or do we not? The American people are not too concerned about how we keep our books, but let me just make a couple of comments why it is so important to the American family, to our kids, and our grandkids. If you had a stack of $1,000 bills pushed tightly together, $1 million would be 4 inches high. Our debt in this country is over 300 miles into outer space of tightly stacked $1,000 bills. Government has got its arm in the pot of available money that can be lent out in this country to the tune of borrowing 40 percent of all of the money lent out last year. What does that mean as far as demand goes? Alan Greenspan, our top banker, Chairman of the Federal Reserve, says if we could end up with a balanced budget we would see a 1.5 to 2 percent lower interest rate. What do you think that means to somebody that is paying off a college loan? I will tell Members what it means. It means on the average an individual would save $2,000 over the payback period of their loan. What does it mean to a family paying off a $100,000 home that they are buying on that mortgage? It means a $2,000 savings. It means that we are going to expand jobs and the economy in this country. The President sent us a budget. CBO says it is never going to balance. And yet right now, in his press conference, the President is announcing that with the growth in the economy we probably would not have to have any spending cuts. Mr. Chairman, just let me finish by saying back in 1947 the Federal Government operated on 12 percent of the GDP. We used 12 percent of the GDP to operate this place. We know what it is now. It is almost double that. We have expanded this Government, spending 22 percent of our gross domestic product. If we care about our kids and our grandkids, let us get back in focus, let us balance this budget.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I would like to submit this important article by Mr. Stuart Sweet into the Record. I urge my colleagues to review it and heed its message. [[Page E 1878]] We must fight for a balanced budget at all costs, yet we must look ahead. The article clearly shows that even if we pass a reconciliation bill and lower cost appropriation bills which put us on a glide path for a balanced budget, we still have great challenges ahead. This country's unfunded liabilities are out of control: [From the Investor's Business Daily] Gingrich And The Copperheads (By Stuart Sweet) Newt Gingrich, a former history professor, risks being a footnote in history. Even if he leads Congress to victory over President Clinton in the coming battle of the budget, he will accomplish little relative to the size of the country's long-term fiscal problems. Gingrich defines the political space in America. All the other major players position themselves a calibrated distance to his left. Sen. Phil Gramm is trying to occupy the same space. Sen. Bob Dole is slightly to their left. Clinton is some distance farther away, and congressional Democrats farther still. Unfortunately, Gingrich has flinched from confronting the true crisis in Medicare and the government's other unfunded liabilities. According to Medicare's actuaries--career civil servants-- the hospital portion of Medicare has an unfunded liability of 3.37% of taxable payroll. That is, if every worker in the nation paid another 3.37% of his or her gross pay to the government for the next 75 years, America could honor its promises to pay hospitals what it will owe them for treating senior citizens. On a net present value basis, this unfunded liability equals $5.4 trillion in 1995 dollars. Social Security is in somewhat better shape. It has an unfunded liability of 2.17% of payroll and a negative net worth of $3.5 trillion in 1995 dollars. The two add up to $8.9 trillion. And the amount climbs higher every year we delay tackling the problem. By my calculations, the GOP budget plan reduces Medicare's unfunded hospital bill liabilities by perhaps $1.5 trillion. That's about one-sixth of what is needed to restore Medicare and Social Security to actuarial balance. By comparison, the amount of federal debt held by the public is less than $4 trillion. If Gingrich forces Clinton's surrender on the budget this fall, the debt held by the public will total just under $5 trillion in 2002, when the budget is ``balanced.'' The GOP is silent about what would come next. But the numbers on Medicare and Social Security tell the story. The budget could stay balanced for another decade. Then, in 2012 and beyond, fiscal disaster strikes. In other words, the GOP's plan to ``save'' Medicare only postpones fiscal Armageddon, giving Medicare's hospital trust fund five years of breathing room. It will go broke in 2007 instead of 2002. Then, about 2012, the retirement of the baby boom will hit the government's finances with an impact equivalent to the moon smashing into the earth. Our politics only rarely produce major chances for fiscal reform. The last time was 1983, when Social Security's unfunded liability, then 1.82% of taxable payroll, was ``solved.'' Twelve years later, the stakes are more than three times higher. To be sure, Gingrich is bolder than Clinton and Democrats in Congress. Clinton's 10-year balanced budget plan would trim Medicare's unfunded liability by a trivial amount. Congressional Democrats pounced on him for even that. And they've launched a million-dollar ad campaign to denounce the plan to ``slash Medicare.'' This is crass politics, not commitment to Medicare. Cabinet officers and nonpartisan actuaries agree that Medicare benefits would have to be more than cut in half for its hospital fund to balance. You have to go back to 1864, when the Peace Democrats and the Democratic Copperheads undermined President Lincoln in the midst of the Civil War, to find equally irresponsible partisanship. Lincoln didn't slow the war effort to appease the Copperheads. He did what he thought was right. Today, only Gingrich can redefine the political geometry by putting forward a comprehensive plan to return Medicare to long-run financial health and to put Social Security back ``on the table.'' The right place for this move is the budget reconciliation process, which should conclude no later than this Christmas. Nothing is stopping the GOP from attaching more reforms to the reconciliation bill, to control spending after 2002. These could include raising the eligibility age, increasing copayments and deductibles, or privatizing the Social Security System. That would be radical and genuinely historic. It might draw support from unlikely sympathizers. The Washington Post, for example, has come out in favor of slowing Social Security spending by raising the retirement age and limiting COLA's. If Gingrich is playing to the history books and not the next election, he cannot be too bold on entitlements. Lincoln saved the Union by defying the Copperheads. And Republicans dominated Washington for seven decades because of his resolve.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I would like to submit for the Record my speech I made this morning at the A.B. Laffer, V.A. Canto and Associates 36th Washington Conference. There are two points I wish to make. First, that a failure to increase the debt ceiling, even for a prolonged period, will not result in a default. Second, the Federal debt has become a burden on everyone in our society and congressional fortitude in balancing our budget would result in lower interest rates. Since the Second Liberty Bond Act was passed in 1917, Congress has set an overall dollar ceiling on the amount of debt the Treasury can issue. Prior to the act, Congress voted on each debt issuance. The limit applies to nearly all debt of the Federal Government, including nonmarketable securities issued to trust funds. Periodically the debt reaches the ceiling and Congress is faced with the question of whether to increase the limit. Since 1940 Congress has responded with an increase 77 times. In October of this year, the debt ceiling will again be reached and this will be the leverage that my colleagues and I will use to ensure the American people get a balanced Federal budget for the first time since 1969. The Secretary of Treasury and the President have called for separating the increase in the debt ceiling from the budget. However, there exists substantial precedent for using the debt ceiling to affect legislation, particularly on budget issues. There were prolonged interruptions in the debt ceiling associated with the debate over the Balanced Budget and Emergency Deficit Control Act--Gramm-Rudman- Hollings--in 1985. The debt ceiling vote was withheld, and the Treasury began under-investing trust funds in early September of 1985 and by November of 1985 actively disinvested trust funds in order to make payments. A permanent increase in the debt ceiling to $2.0787 trillion was enacted on December 12, 1985. The 1990 budget was resolved during six temporary increases in the debt ceiling between August 9 and a permanent increase on November 5. During this session the Treasury primarily used the postponement of auctions to manage the cash flow. The Congressional Budget Office, as of yesterday, estimates the debt limit will be reached sometime at the end of October. Treasury's first potential cash management problem could occur November 3. At this point, Social Security payments must go out. During the first week of November, these payments, along with other retirement and disability payments, will reduce Treasury's cash by about $37 billion. The next hurdle will be on November 15, when interest payments of approximately $25 billion are due. Overcoming this hurdle will require clever cash management on Treasury's part. Some have argued that failure to raise the debt ceiling will result in a ``train wreck'' which will cause Treasury to default and forever [[Page E 1883]] harm the credit of the United States. This need not be true. Treasury Secretary Rubin has told me, both in a letter and in personal conversation, that in the case of reaching the debt ceiling Government obligations would be paid on a first-in-first-out basis. I have introduced H.R. 2098, which would alter this. H.R. 2098 provides that, in the case the Treasury is unable to borrow on a timely basis due to the debt ceiling being reached, the Secretary of the Treasury has authority to follow a priority of payment as established by the President. This will ensure that vital payments will be made as the cash flow is managed in order to preserve the soundness of the existing debt obligations. In every month that Treasury is likely to be at the debt limit, there is sufficient cash to make all interest payments, Social Security payments, Medicare payments, and other essential payments. Nonessential payments might have to be delayed, but there is no question that interest and principal on Government obligations would be paid. Moving to my second point, some have argued that it would be irresponsible to not increase the debt limit, even if we do not get a balanced budget agreement, because the financial markets will be so shaken by the possibility of a delay in payments that interest rates will skyrocket. However, it is high long-term real rates that are putting a drag on the economy. A firm commitment by the Congress to balance the budget, to the point of willingness to risk short-term rate increases, could easily flatten the yield curve and shift it down, in other words, lower long-term rates. Government borrowing consumes massive amounts of America's financial capital. The outstanding debt subject to limit stands at $4.86 trillion. To put this in perspective, $4.86 trillion if stacked in $1,000 bills would reach more than 300 miles into space. The effect of such a debt reaches beyond the obvious effect on interest rates, it places a burden on those who will follow us in shaping this great Nation of ours. Each child born in our country today, during their lifetime, will pay approximately $187,000 in taxes just to pay their share of the interest on the national debt. That doesn't include paying off one penny of the principal. Boston University economist Laurence Kotlikoff forecasts that, if Federal spending continues at its current rate, a child born today could have up to 84 percent of his income consumed by taxes. In 17 years, if we continue on the current path, all tax revenue will be consumed by entitlements and interest payments on this enormous debt. Balancing the budget will take several hundred billion dollars out of the demand for loanable funds. The reduction in Treasury demand is part of the reason Chairman Greenspan and others are predicting such a decline in rates. But rates could drop prior to the actual balancing if Congress takes a firm enough position on the issue. Thus, I predict failure to raise the debt ceiling in order to force a balanced budget by 2002 will cause a decline in long-term rates and possibly even short-term rates, given the term structure of U.S. debt. Nobel Laureate Milton Friedman was espousing his crowding out hypothesis some 30 years ago. He was correct. Government spending will crowd out private investment. Another Nobel Laureate, James Buchanan, and his colleague, Richard Wagner, warned us almost 20 years ago that an unconstrained Federal deficit would lead to high interest rates and eventually high inflation as the Fed is forced to monetize the debt. In addition, we have seen, over the last 15 years, a massive rise in our trade imbalance. The latter is in good part due to our huge Government borrowing, resulting in foreign countries lending us money instead of buying our goods. It is time that we put a stop to this. We cannot sustain a Leviathan government and retain economic growth and our personal freedom. What Thomas Jefferson wrote in a letter to Samuel Kercheval in 1816 should be the motto for the debt limit coalition as pressure mounts to compromise: ``And to preserve their independence, we must not let our leaders load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.''

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I thank the gentleman for yielding. Mr. Speaker, I would like to give a quote from George Will. He says: Although there is stiff competition for the title, `Dumbest Thing the Government is Doing,' a leading candidate is the government's refusal to repeal the Davis-Bacon Act. Mr. Speaker, guess who said this? Milton Friedman: Davis-Bacon is not outdated; it never made sense. From the outset, it was special interest legislation designed to have the taxpayers provide a subsidy in concealed form to members of the construction unions and to the union leaders. It never should have been enacted, and it should be repealed.

Mr. SMITH of Michigan. Mr. Speaker, for example, electricians in Philadelphia average $15.76 per hour on private contracts, but the prevailing wage for them is $37.97. There are many similar examples, as you point out.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. That now becomes, because of the failure for that committee to enact legislation consistent with the budget resolution, a new proposal will be offered by the chairman of the Committee on the Budget that achieves the same kind of budget reductions. Let me tell you what has happened in the U.S. Congress, as I observe it, and that is Members traditionally members of the Committee on Economic and Educational Opportunities that wanted to spend more money on education, say, ``I want to be on the Education Committee.'' Members that want more roads in their districts want to be on the Committee on Transportation and Infrastructure. We have got Members on the Committee on Agriculture that would like more money for their farmers. If we are going to phase out agriculture in a smart way and not make that farmer continuously dependent on the Federal Government and, hopefully, end up with a larger income for that farmer, then we have got to move to a market economy.

Mr. SMITH of Michigan. I yield to the gentleman from Georgia.

Mr. SMITH of Michigan. Mr. Speaker, several issues have come up, but I would like to start out with agriculture, what the Federal farm policy should be in this country and the advantages and disadvantages to the farmer and the consumer. Since the early 1930's, we decided that by controlling production we could guarantee a stable supply of food in this country. However, what has happened in the last 30 years is the consumer interests, the White House, the consumer interests in Congress have started dictating farm program policy, and what has happened is we have driven more and more of the small family farmers out of agriculture. Here is how farm programs have worked: We tell the farmers if they will grow a certain amount of crop and slightly have a policy that encourages overproduction, we will give those farmers subsidy payments. So what we have done, in effect, is encourage slight overproduction, keeping the prices down, which has been good for agriculture in this country because it has become lean and mean. But in the process, we have disadvantaged the small family farmer in the United States. That is why, and I as a farmer from Michigan, I am now suggesting that we move to the market economy to give the rewards to the producers of this Nation so that the farmers and ranchers can make their own farm management decisions based on their best interpretation and understanding of what the market is demanding for those special crops. By doing these, many of the economists that have been advising us on freedom to farm have said that farmers will end up better off as we make this transition to the marketplace. Make sure, it is a difficult transition, that we have enticed farmers to become more and more dependent on farm subsidies during the last 40 years. So their cash flow, in many cases, depends on it. What we have got to do as we make this transition to a market economy, and that is what the Freedom to Market Act does, is make the kind of transition that is going to keep American agriculture the strongest in the world.

Mr. SMITH of Michigan. Reclaiming my time, I think we are on the same track. The question is how do we achieve the same result in making the transition for farm programs. We have got to do it smartly, simply, because other countries are subsidizing so heavily.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, one of the things that bothers my constituents as much as anything maybe is their experience standing in food lines and the individuals ahead of them at one time or the other have food stamps, and the food that they are buying with those food stamps is more than the individuals that are working very hard for a living, that go to work every day even when they do not feel like it, can afford. So they are bothered by what turns out to be a $25 billion a year food stamp program and welfare, AFDC. Can my colleagues imagine going to our own daughters and saying, I want to talk about your allowance. If you get pregnant, we are going to increase your allowance by $500 a month, provide you housing, and a food allowance on top of that. We never say hat to our own daughters, but as a society we are doing that. In some cases, it is a deciding factor in what has happened in this country with these young women, where now 30 percent of the births in the United States are out of wedlock.

Mr. SMITH of Michigan. That is right. Mr. Speaker, we have enticed so many people to come up to the public trough, that they have become accustomed to it. It is difficult to make the transition away from that trough. It has to be done. Mr. Speaker, politicians are not going to do it unless the American people say, hey, it is time. Cut spending. We are willing to tighten our belts to make some of the sacrifices so that our kids and our grandkids have the same chance of improving their lifestyle as we did. Davis-Bacon comes to mind. Davis-Bacon is coming up in the next several days. Davis-Bacon was enacted by Republicans in 1931 so that some lower-cost, black labor coming into New York could not get those construction jobs where there was any Federal money. So the law was passed, it kept the beginning wage-earners out of the marketplace for anything that government was contributing money towards constructing or building. The Congressional Record of 1931 reveals that one of its primary goals was to block southern minority contractors from obtaining New York construction jobs. Let me just give an example of the requirement of prevailing wage. The prevailing wage in Philadelphia for electricians averages $37.97 an hour, but the average wage actually paid by private contractors is $15 an hour. That has resulted in an overcost to the American taxpayer, and with the expenditures that we borrow from the United States, of $3.2 billion. That is only the tip of the iceberg, because every place that government has any money in a State contract where the State may be paying the majority share of that contract, the State is now required to pay those prevailing wages instead of the market wages that could tremendously reduce the cost of schools and any other construction.

Mr. SMITH of Michigan. I would like to ask a test question. Mr. Speaker, I would like to ask the question to the American people to give me your best guess, of all of the money lent out in the United States last year, how much of that money do you think was borrowed by the Federal Government? I will give you the answer. Think about it a second. The answer is 42 percent of all of the money lent out in the United States was borrowed by the Federal Government. That is why Greenspan says if we can just do what we should do and not spend more than we are taking in, interest rates will go down 2 percent. How do we cut down on some of this wasteful spending of the Federal Government? I think that is a question for the gentleman from Georgia [Mr. Kingston]. Let us all pitch in some ideas on wasteful spending.

Mr. SMITH of Michigan. In 1917, Congress was passing on every borrowing, so they would agree who we were going to borrow money from and on the interest rate. In 1917 what they said was, ``OK, from now on we are going to set a debt ceiling. You can continue to borrow as long as you are under that debt ceiling.'' But it has sort of become a way of life. Since 1940, we have increased the debt ceiling 77 times. The last time we did it, at $4.9 trillion, was in 1993. We are going to reach that $4.9 trillion in about 3 weeks from now.

Mr. SMITH of Michigan. Mr. Speaker, I think the gentleman from Arizona would agree that this person, probably after Congress, could go right into the radio business as a talk show host.

Mr. SMITH of Michigan. We have two trains. There is a train on each track. One is the appropriation bills. We have 13 appropriation bills. They must be enacted to allow the Federal Government to continue spending in those areas. Those 13 appropriation bills have not been agreed to. So what we did today, this morning, is we passed what is called a CR, a continuing resolution. That continuing resolution allows the administration to continue to spend money, but at a lesser rate than they were spending money before the 1st day of October. So 3 days from now, when the new fiscal year starts, they will be allowed to continue spending until November 13 the average of what the House passed in the appropriation bills, compared to what the Senate passed in their appropriation bills, minus 5 percent. And so we are saying OK, we will allow continued spending, but at a very modest rate until we come to final agreement on the appropriation bills. The other potential train wreck is the debt ceiling of this country. There have been a lot of suggestions that withholding our vote on increasing the debt ceiling is going to cause catastrophe.

Mr. SMITH of Michigan. I would hope we can use part of this hour to talk about some of the other crazy things that are happening in the Federal Government, but it seems to me the fact is that there is no dollar savings as we look at revitalizing Medicare in this country. We are going to spend more and more money, as the gentleman from Arizona pointed out. Individual recipients who are receiving $4,800 now will be getting, by the year 2002, $6,700, so actually, we are continuing to spend more and more money. I would ask the gentleman from Georgia [Mr. Kingston], as we talk about maybe some of the other issues in the minutes that we have left, if he would give us a briefing on the status of the Istook amendment.

Mr. SMITH of Michigan. Can I just say that I understand from the Committee on Rules that, if the Democrats do propose a plan that meets the budget guidelines, that will be made in order for debate.

Mr. SMITH of Michigan. Well, there is no question that the design of the program is to preserve Medicare for not only the estimated 36 million people that now use Medicare, but also for future generations, and so the No. 1 decision of the Republican conference is anybody that wants to stay in this current program as it is designed has the option to do that, and from there we expand to what is called Medicare Plus, giving seniors greater options. We have got to end up with seniors being better health care shoppers, and to do that we are suggesting that seniors should be allowed to keep some of the savings that they can derive for not only the Federal Government, but for themselves as they do a good job shopping for health care----

Mr. SMITH of Michigan. Mr. Kingston, are they saying more or less spending in your area?

Mr. SMITH of Michigan. At least in Michigan, they are saying you are not going far enough, you are not going fast enough. You know, we are not doing the traditional tax-and-spend anymore. I mean, the voters of this country have said, ``Look, we are paying over 42 percent of what we earn in taxes. Now, that is enough.'' So what Government has done is they have decided that they can go out and borrow the money and expand social programs and expand the size of this bureaucracy by borrowing more and more money. The interest just of servicing the Federal debt, the interest on the debt subject to limit this year was over $330 billion, almost 22 percent of our budget just for servicing the debt, and so the borrowing has got to be stopped. We have got to bring down the size of this Government if we want individuals to to have the freedom and independence that the founders of our Constitution designed.

Mr. SMITH of Michigan. The House has done very well. Now we need to finalize our ambitions, get these bills enacted into law. You know, it should be frightening to everybody in this country, how big this Government has gown to be. After World War II, in 1947, we were spending 12 percent of our gross domestic product to run the budget of the United States. That is what we spent as a percentage of gross domestic product, 12 percent. Today we are almost twice that. Every day the United States writes out over 3,200,000 checks. Can you [[Page H 9654]] imagine a government, in talking to Secretary Rubin, Treasury is not even sure of all of the points that they make these electronic transfers, these payments, these checks? But the estimate is someplace around 12,000 different locations.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, the time has long since passed for the repeal of the Davis-Bacon Act. Yet, this outdated piece of legislation, along with all of its adverse effects, is still a bulwark of the United States labor law. The Davis-Bacon Act should be repealed for several important reasons: First, it violates Americans' right to contract freely with one another. Second, it has inequitable effects between people of different races. Third, it serves no interest other than to protect the wages of white unionized construction labor. Fourth, it adds over a billion dollars each year directly to Federal Government expenditures. The Davis-Bacon Act was passed in 1931 amidst a sharp decline in construction activity and falling wages and prices that characterized the Great Depression. Its intent was twofold; First, it aimed to halt the decline of wages. Second, Davis-Bacon intended to prevent blacks, migrant workers, and carpetbagging contractors from competing for contracts that had typically been awarded to local, white unionized labor. How did the act attempted to achieve these objectives? By requiring that construction workers on federally financed projects be paid the local prevailing wage rate. This prevailing wage, as determined by the Department of Labor is nothing more than the union wage. In other words, this act gives the Secretary of Labor the authority to set the minimum wage for construction workers at a rate greater than that determined by the forces of supply and demand. In effect, this requirement to pay an artificially high wage precludes most minority- owned and nonunionized firms from bidding for government construction contracts since they cannot afford to pay union wages. Consequently, the Davis-Bacon Act serves to protect the jobs and inflated wages of predominately white unionized labor by insulating them from lower cost competition. It effectively grants the higher cost, unionized contractors their own private monopoly over federally funded construction projects. But there is another effect that follows directly from the required payment of prevailing wages. Since the Federal Government is prohibited by law from awarding contracts to lower wage, lower cost construction firms, it necessarily spends an excess of what it needs to in order to get the job done. And guess who is paying the difference. In fact, Davis-Bacon adds over a billion dollars each year directly to Federal Government expenditures, not to mention the additional billions added to private expenditures on projects that are partially federally funded. That means you and I are forced to subsidize the multitude of artificially and unnecessarily expensive construction projects because back in 1931, the Government granted a monopoly over the contracts to such projects to a small group of unionized construction workers. The claim by some of my colleagues and supporters of the act that Davis-Bacon simply recognizes existing wages as determined by the local market, and therefore, adheres to free market principles, indicates a serious misunderstanding of the process through which the free market works. A free market, with competitively determined wages and prices, needs neither government recognition nor enforcement in order to properly function. These are the prices and wages that would exist in the absence of the Department of Labor. The very fact that the Davis- Bacon Act was deemed necessary to require and enforce the payment of prevailing wages indicates that these are not the wages that would prevail in the free market. If the only group of people whom this legislation benefits is a small number of predominately white, unionized labor, while imposing significant costs on minority and nonunion construction workers, as well as every taxpayer in the form of increased Federal Government expenditures, then you might ask, how has Davis-Bacon remained the law for 64 years? The act has stubbornly survived precisely because it has a highly unified, powerful constituency. Organized labor groups lobby [[Page E 1860]] through large campaign contributions, persuasion, and the votes of their members to influence labor policy in their favor. On the other hand, opposition to laws like Davis-Bacon is diffused and unorganized, simply because these very real costs, which fall lightly on each American, go largely unnoticed. Finally, and perhaps most importantly, congressional mandates that prohibit arrangements between the buyers and sellers of labor that would otherwise be mutually agreeable directly interferes with freedom of contract. Our Founding Fathers believed that the free marketplace, unobstructed by government intervention, was the best source of progress and prosperity for all people. They believed that the role of government was to protect liberty by acting as an impartial umpire, not to manage outcomes by interfering with every play. The time has come to repeal legislation created for this end. The time is ripe to repeal the Davis-Bacon Act.