Balanced Budget Amendment Needed to Rein In Spending

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A democracy cannot exist as a permanent form of government, according to Eighteenth Century Professor Alexander Frazer Tytler. A democracy can only exist until the voters discover they can vote themselves largesse out of the public treasury. Tweet quote:

The framers of the constitution would have done well to heed Woodhouselee’s observation and make it more difficult for Americans today to vote themselves such largesse.

Voting generous disbursements has caused the so-called “on-the-books” debt of the U.S. to approach a perilous $17 trillion. Perhaps we can subtract $3 trillion from that figure because that is the amount that the federal government owes its own trust funds for Social Security, Disability, Medicare, and Medicaid.

However, that subtraction leads to a larger question.

The U.S. on-the-books debt is just the tip of the iceberg. More disturbing is the unprecedented level of Uncle Sam’s unfunded liability. Unfunded liability is a measure of how much Uncle Sam needs to have banked today in order to keep promises he has made for the future.

Future receipts are given credit in the calculation and the total amount is discounted back to present value. Still by one account, our Uncle needs $16.2 trillion in the bank just to keep his promises for Social Security.

There’s more. When President George W. Bush added a prescription drug program to Medicare, albeit for compassionate reasons, he raised unfunded liability by $21.5 trillion. The rest of Medicare and other items bring the total unfunded liability of the United States to $86.8 trillion.

Add “on-the-books” debt of $14 trillion (after subtracting obligations to Uncle’s own trust funds), and the total debt and under-funding of the United States grows to an eye-popping $100.8 trillion and is on auto-pilot to increase $7 trillion a year.

The consequences will visit us soon. The United States can respond to those consequences in two hypothetical ways: default or print money to effectively reduce the size of the obligation.

A default would cause reverberations in the economy. Printing money was tried at various times in history. It was tried with the Continental Congress, the Confederacy, the German Weimar Republic, and more recently in Yugoslavia and Argentina — all with abhorrent results.

$100 trillion cannot be raised in taxes. Can Congress then help itself and begin to curb spending, including new obligations, on its own? No.

Members of Congress receive grades from their constituents according to how much money they bring home to their districts. The cumulative effect of this incentive causes unchecked overspending. Share this article:

What counterbalances would tamp spending down? The following nine points in a balanced budget amendment would curb a great deal of fiscal chicanery: Tweet it:

  1. Outlays must not exceed receipts. Outlays do not include debt repayments. Receipts do not include those derived from borrowing.
  2. Outlays include increases in unfunded liability.
  3. Outlays include unfunded mandates imposed by the federal government on subordinate levels of government.
  4. Outlays must not exceed 18% of the economic output of the United States.
  5. The money supply of the United States must not grow more than the growth in the size of the economy. This check would avoid the temptation to print money.
  6. If a bill contains a revenue measure, all provisions of the bill must be germane to the main purpose of the bill. This requirement would prevent members of Congress from attaching revenue measures onto bills whose purposes are unrelated to the attachments.
  7. No trust fund of the United States may invest in the government of the United States, and no trust fund of the United States may be used for any purpose outside the specific purpose of the trust fund. This prohibition would stop the practice of raiding trust funds.
  8. The president must have the power to veto individual provisions of a revenue bill without invalidating the entire bill. This provision is commonly known as the “line-item veto.” The President must submit a budget each year that is balanced – according to these criteria.
  9. The president must not be required to spend any appropriation by Congress. This provision is commonly known as “impoundment.” This provision would allow the President to halt spending on programs whose purpose no longer exists, or spending on programs that the President determines to be inefficient.

Certain escapes need to be built into such a constitutional amendment to provide for unforeseen circumstances. Congress could waive provisions during a time of war or armed conflict.

Otherwise a three-fifths “super majority” would be needed to waive most. Two-thirds would be required to increase revenue, override a veto or override an impoundment. All permitted waivers and relaxations must be by roll-call vote.

States and private citizens must have the right to go to court to enforce this amendment and receive counsel fees if they prevail. Congress can constitute a specialized court to hear these cases.

The amendment would need to be phased in. With a phase-in, the spending that such an amendment reins in would hardly be missed.

There is another measure that does not require a constitutional amendment and would rein in spending. Replacing income, payroll, self-employment, estate, gift, and generation-skipping taxes with a consumption tax would have two salutary effects. Share it:

First, the base for consumption taxes is 31 percent more stable, enabling governments to smooth out their budgets between times of economic expansion and recession. Second, consumption taxes are more visible than income taxes, facilitating scrutiny by consumers of the true cost of government.

A bill in Congress to accomplish these objectives already exists, the Fair Tax Act of 2013, HR25 and S122. With these two measures, our democracy has a chance at another 238 years.