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Mr. Chairman, I am pleased to appear before this Committee as you prepare to consider appropriation requests for fiscal year 1982 and proposed supplemental and rescissions for the current fiscal year.

As the Congress reexamines the 1981 budget and begins work on 1982, the serious difficulties of the current economic and budgetary situation are apparent.

• Federal spending has grown rapidly in the last several years. Unified budget outlays grew by 17.4 percent in 1980, and they are expected to grow by over 14 percent in 1981. Total outlays would grow by another 12 percent in 1982 under President Carter's spending proposals. Outlays as a percentage of GNP are projected at 23 percent for 1982 in the Carter budget, a full 2 percentage points higher than the goal set by President Carter when he took office.
  
  
• Budget deficits have persisted in good years and bad. The federal budget has not been in balance since 1969. During the last six years, the cumulative budget deficit has been $306 billion. If spending by the Federal Financing Bank (FFB) and other off-budget entities is included, the total budget deficit since 1975 has been $368 billion. The 1981 budget is now projected to have a deficit of at least $55 billion--$78 billion if off-budget outlays are included. As a result of these deficits, as well as a further deficit in 1982, the federal debt is projected to exceed $1 trillion during the next fiscal year.
  
  
• Half of the growth in outlays since 1975 has been in Social Security and other payments for people. Most of these payments are mandatory entitlements under current law, and are indexed directly or indirectly for inflation. They now constitute almost 50 percent of the budget. CBO projects that these payments will grow by $240 billion over the next five years under current law, as the retired population expands and adjustments are made for increases in the cost of living.
  
  
• Increased benefit payments coupled with desired and built-in spending, will make it extremely difficult to slow spending growth. CBO's preliminary projections of federal outlays over the next five years suggest that spending growth will average at least 10.5 percent a year under current policies. Both the Congress and the new Reagan Administration have expressed a strong commitment to expand the rate of defense spending, which under current policy is already projected to increase by an average of over 12 percent annually. The growth in benefit payments for individuals is projected to average 11.5 percent. Reductions in entitlement benefits and other nondefense spending programs have proved very difficult to achieve in the past.
  
  
• The current outlook for a sluggish economy and continued high inflation means that only drastic action by the Congress can reduce spending growth and budget deficits. Most economists expect slow economic growth during the next year, and some project a renewed recession in the first part of 1981. This would have the effect of maintaining relatively high levels of spending for unemployment compensation and reducing federal revenues. Inflation is expected to come down only slowly; thus, spending for indexed benefit programs will continue to grow at a healthy clip. The longer-term outlook for the economy is very uncertain; an escalation of inflation because of large oil price increases, another year of bad crops, or more severe unemployment could worsen the budgetary outlook.

This is a grim outlook for the budget. It presents a serious dilemma for the Congress in pursuing the goals of sustained tax cuts, real growth in defense spending, and a balanced budget within the next few years. Achieving these goals will require sizable cuts in nondefense spending programs.

In past years Appropriations Committees consistently have been able to reduce the President's requests for annual appropriations. But the growth in indexed benefits and other mandatory spending has allowed an increasing share of the federal budget to escape the annual competition with other programs for federal dollars.

During the past 10 years, the relative control over federal outlays that can be exerted through the annual appropriations process has fallen sharply. In fiscal year 1970, the Appropriations Committees could exert control on 59 percent of federal outlays. By 1980, this control had fallen to 41 percent, of which about half was for defense spending. If the growth of federal spending is to be reduced in the future, it is clear that committees of the Congress that have jurisdiction over entitlements and other mandated spending will have to play a greater role in achieving budgetary savings.

In the remainder of my statement, I will discuss in more detail the budget and economic outlook for both the current fiscal year and 1982.

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