It's time to fix the debt with the 'Compact for a Balanced Budget'
Nick Dranias
[Editor's note: The following is a response to RA columnist Publius Holdah's Jan. 30 article "Balancing the budget? Or adding a national sales tax to the income tax?"]
On Nov. 26, 1798, Thomas Jefferson wrote his friend, John Taylor: "I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution... I mean an additional article taking from the federal government the power of borrowing."
Today, with the gross federal debt exceeding 100% of gross domestic product, the seriousness of the nation's debt problem cannot be overstated. The out-of-control federal debt has the potential to bankrupt our country and cripple the economy.
And there is no question debt is the problem. More than any other policy, unlimited debt spending is the source and enabler of an ineffective, overstretched, and overreaching federal government.
Throttling back limitless debt spending will create a structure that forces a debate over the proper priorities and sustainable functions of the federal government that will otherwise be easily evaded.
Fortunately, the Compact for a Balanced Budget provides a solution. Championed by Alaska State Representative Wes Keller in HB284, here's how the Compact's Balanced Budget Amendment would work: The BBA imposes an initially fixed constitutional federal debt limit equal to 105% of the total outstanding debt at the time of ratification. But long before the midnight hour arrives and the typical "game of chicken" over the debt limit begins, the BBA is designed to compel Washington to balance its budget or prepare a budget that can make the case for more debt. It would require the President to start designating spending impoundments when spending exceeds 98% of the debt limit. Congress must then override those impoundments with a simple majority vote within 30 days with alternatives if they disagree.
This allows for the planned delay of spending to enforce the debt limit at least 6 months before the debt limit is reached (at current spending and borrowing "burn" rates). And if the President does not designate impoundments, and if majorities of Congress and the State legislatures do not approve an increase in the federal debt limit or new revenues, spending will be limited to taxes when the debt limit kicks in, requiring an across-the-board sequester for which the President could be impeached. This process ensures that the buck stops at the President's desk.
Of course, under the BBA, any deficit could also be closed with new or increased taxes, but not without supermajority (2/3rds) approval of the whole number of each House of Congress, unless the new revenues were to be generated from: (a) completely replacing all income taxes with an end-user (non-VAT) sales tax; (b) the closure of tax credits, deductions, and exemptions; or (c) an increase in tariffs and fees. While new revenues through these exceptions would certainly be possible with simple majority approval of each House of Congress (the same hurdle required right now), the debate would be driven through narrow channels where special interest push-back would tend to be most intense, and where the outcome of any successful drive for new revenues would tend to result in a flatter income tax, or a fairer, more voluntary, more consumption-based tax system. In other words, the BBA would powerfully incentivize spending reductions or better tax policy as the primary means of closing a deficit.
If an increase in the debt limit were needed, the President and Congress will have plenty of time to propose an increase in the debt that would be subject to a referendum of a majority of the state legislatures, acting as an active board of directors for our wayward Washington CEOs. The 5% debt cushion when the debt limit is established upon ratification will give Washington between 1 and 2 years to develop the case for more debt at current burn rates. With impoundments on the table when 98% of the debt limit is reached, a genuinely meaningful and transparent national debate would finally take place over the proposed increase in the debt limit. The debate would occur in places that are far closer to the People than Washington – our state capitols. At the very least, this would provide a strong incentive for Washington to generate a budget to justify the proposed new debt, which would give advocates of fiscal responsibility a foothold for analysis they currently do not have.
In short, with clear lines of accountability and powerful structural incentives, the Compact for a Balanced Budget would finally force Washington's political players to put their cards on the table face-up long before hitting a hard debt limit, protecting our country's credit from being held hostage. The prospect of real debt scarcity will force the political class in Washington to finally make the tough calls needed to save our future.
Even though Washington continues to ignore its fiscal responsibility, some may question whether the states should have a voice in the national debt debate. But the states should have a voice for the same reason that the U.S. Constitution originally gave state legislatures control over the U.S. Senate: a centralized authority should not have a free hand in determining – or mortgaging – the future of every community in the nation.
Why should the American people want to tie the hands of their federal representatives rather than voting them out or waiting for the next "Clinton-Gingrich" deficit deal?
Because unlimited debt is not only unsustainable, it is also fundamentally anti-democratic. And "Clinton-Gingrich" compromises are few and fleeting in history. There's a reason for that.
Think about it. Who is being stuck with the bulk of the bill for the federal government's borrowing?
The answer is currently non-voting future generations. That is obviously not democratic. Having your future mortgaged for you without any choice is not freedom or democracy.
Who is receiving the benefits of the federal government's borrowing?
The answer is voting current generations. That underscores the danger of unlimited debt.
After all, to whose interests and desires will most elected officials be most responsive most of the time? Non-voting future generations or voting current generations?
You know the answer. With the possibility of unlimited borrowing from non-voting future generations, there simply is not enough of an incentive in a democracy for most elected officials most of the time to stop borrowing from future non-voting generations to secure the happiness, gratitude, and yes, support of current voting generations. In other words, without a firm constitutional debt limit that constrains the democratic process, the democratic system will structurally trend toward undemocratically saddling future generations with exponentially increasing amounts of debt.
This observation underscores the irony of a constitutional limit on debt. So let me say it again, but differently:
Without tying the hands of the democratic process with a firm constitutional debt limit, that unbound democratic process will inevitably trend toward the undemocratic outcome of mortgaging the future of non-voting future generations.
A genuine democracy – one that trends toward actually reflecting the will of the majorities impacted by its decisions – therefore requires a firm constitutional debt limit.
In other words, a genuine democracy is only possible within the constraints of a republic.
That's why both Classical Liberals and Progressives of the late 19th century and early 20th century – the conservatives and liberals of their day – converged on the same policy solution for unlimited debt at the state level.
How much longer are we going to remain behind partisan and ideological lines before fixing the national debt?
We must do the right thing before it is too late.
______________________________________
Nick Dranias, esq., is Director of Policy Development and Constitutional Government at the Goldwater Institute
February 4, 2014
[Editor's note: The following is a response to RA columnist Publius Holdah's Jan. 30 article "Balancing the budget? Or adding a national sales tax to the income tax?"]
On Nov. 26, 1798, Thomas Jefferson wrote his friend, John Taylor: "I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution... I mean an additional article taking from the federal government the power of borrowing."Today, with the gross federal debt exceeding 100% of gross domestic product, the seriousness of the nation's debt problem cannot be overstated. The out-of-control federal debt has the potential to bankrupt our country and cripple the economy.
And there is no question debt is the problem. More than any other policy, unlimited debt spending is the source and enabler of an ineffective, overstretched, and overreaching federal government.
Throttling back limitless debt spending will create a structure that forces a debate over the proper priorities and sustainable functions of the federal government that will otherwise be easily evaded.
Fortunately, the Compact for a Balanced Budget provides a solution. Championed by Alaska State Representative Wes Keller in HB284, here's how the Compact's Balanced Budget Amendment would work: The BBA imposes an initially fixed constitutional federal debt limit equal to 105% of the total outstanding debt at the time of ratification. But long before the midnight hour arrives and the typical "game of chicken" over the debt limit begins, the BBA is designed to compel Washington to balance its budget or prepare a budget that can make the case for more debt. It would require the President to start designating spending impoundments when spending exceeds 98% of the debt limit. Congress must then override those impoundments with a simple majority vote within 30 days with alternatives if they disagree.
This allows for the planned delay of spending to enforce the debt limit at least 6 months before the debt limit is reached (at current spending and borrowing "burn" rates). And if the President does not designate impoundments, and if majorities of Congress and the State legislatures do not approve an increase in the federal debt limit or new revenues, spending will be limited to taxes when the debt limit kicks in, requiring an across-the-board sequester for which the President could be impeached. This process ensures that the buck stops at the President's desk.
Of course, under the BBA, any deficit could also be closed with new or increased taxes, but not without supermajority (2/3rds) approval of the whole number of each House of Congress, unless the new revenues were to be generated from: (a) completely replacing all income taxes with an end-user (non-VAT) sales tax; (b) the closure of tax credits, deductions, and exemptions; or (c) an increase in tariffs and fees. While new revenues through these exceptions would certainly be possible with simple majority approval of each House of Congress (the same hurdle required right now), the debate would be driven through narrow channels where special interest push-back would tend to be most intense, and where the outcome of any successful drive for new revenues would tend to result in a flatter income tax, or a fairer, more voluntary, more consumption-based tax system. In other words, the BBA would powerfully incentivize spending reductions or better tax policy as the primary means of closing a deficit.
If an increase in the debt limit were needed, the President and Congress will have plenty of time to propose an increase in the debt that would be subject to a referendum of a majority of the state legislatures, acting as an active board of directors for our wayward Washington CEOs. The 5% debt cushion when the debt limit is established upon ratification will give Washington between 1 and 2 years to develop the case for more debt at current burn rates. With impoundments on the table when 98% of the debt limit is reached, a genuinely meaningful and transparent national debate would finally take place over the proposed increase in the debt limit. The debate would occur in places that are far closer to the People than Washington – our state capitols. At the very least, this would provide a strong incentive for Washington to generate a budget to justify the proposed new debt, which would give advocates of fiscal responsibility a foothold for analysis they currently do not have.
In short, with clear lines of accountability and powerful structural incentives, the Compact for a Balanced Budget would finally force Washington's political players to put their cards on the table face-up long before hitting a hard debt limit, protecting our country's credit from being held hostage. The prospect of real debt scarcity will force the political class in Washington to finally make the tough calls needed to save our future.
Even though Washington continues to ignore its fiscal responsibility, some may question whether the states should have a voice in the national debt debate. But the states should have a voice for the same reason that the U.S. Constitution originally gave state legislatures control over the U.S. Senate: a centralized authority should not have a free hand in determining – or mortgaging – the future of every community in the nation.
Why should the American people want to tie the hands of their federal representatives rather than voting them out or waiting for the next "Clinton-Gingrich" deficit deal?
Because unlimited debt is not only unsustainable, it is also fundamentally anti-democratic. And "Clinton-Gingrich" compromises are few and fleeting in history. There's a reason for that.Think about it. Who is being stuck with the bulk of the bill for the federal government's borrowing?
The answer is currently non-voting future generations. That is obviously not democratic. Having your future mortgaged for you without any choice is not freedom or democracy.
Who is receiving the benefits of the federal government's borrowing?
The answer is voting current generations. That underscores the danger of unlimited debt.
After all, to whose interests and desires will most elected officials be most responsive most of the time? Non-voting future generations or voting current generations?
You know the answer. With the possibility of unlimited borrowing from non-voting future generations, there simply is not enough of an incentive in a democracy for most elected officials most of the time to stop borrowing from future non-voting generations to secure the happiness, gratitude, and yes, support of current voting generations. In other words, without a firm constitutional debt limit that constrains the democratic process, the democratic system will structurally trend toward undemocratically saddling future generations with exponentially increasing amounts of debt.
This observation underscores the irony of a constitutional limit on debt. So let me say it again, but differently:
Without tying the hands of the democratic process with a firm constitutional debt limit, that unbound democratic process will inevitably trend toward the undemocratic outcome of mortgaging the future of non-voting future generations.
A genuine democracy – one that trends toward actually reflecting the will of the majorities impacted by its decisions – therefore requires a firm constitutional debt limit.
In other words, a genuine democracy is only possible within the constraints of a republic.
That's why both Classical Liberals and Progressives of the late 19th century and early 20th century – the conservatives and liberals of their day – converged on the same policy solution for unlimited debt at the state level.
How much longer are we going to remain behind partisan and ideological lines before fixing the national debt?
We must do the right thing before it is too late.
______________________________________
Nick Dranias, esq., is Director of Policy Development and Constitutional Government at the Goldwater Institute