Writing a Better Balanced Budget Amendment


Tuesday May 3rd, 2011   •   Posted by Craig Eyermann at 6:31am PDT   •  

U.S. Constitution and Quill PenBack on 3 February 2011, a number of Republican Senators introduced Senate Joint Resolution 5, which proposes to amend the U.S. Constitution to require the U.S. Congress to balance the annual budget of the U.S. federal government.

It’s a good sentiment, and it has some points to recommend it, however it’s got some real world problems, which we’ll take on, section by section:

Section 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year.

That really sounds good, doesn’t it? In theory, that’s all the U.S. Congress would ever need to do to balance the U.S. government’s budget. But as Yogi Berra observed, “In theory, there is no difference between theory and practice. But, in practice, there is.”

Section 2. Total outlays shall not exceed 18 percent of the gross domestic product of the United States for the calendar year ending prior to the beginning of such fiscal year.

We like the 18% of GDP figure — the long term average of total federal receipts since 1946 is 17.8% of GDP, so this figure is certainly in the right ballpark.

The big problem though, is that there isn’t a standard legal definition of Gross Domestic Product. That provides an opening for a lot of games that politicians and bureaucrats could play with the vagueness inherent in the law with respect to GDP.

Plus, because government spending itself adds to GDP, systematically boosting government spending over time could boost government spending well above what the private sector can support, which would ultimately lead to an economic death spiral.

Section 3. The Congress may provide for suspension of the limitations imposed by section 1 or 2 of this article for any fiscal year for which two-thirds of the whole number of each House shall provide, by a roll call vote, for a specific excess of outlays over receipts or over 18 percent of the gross domestic product of the United States for the calendar year ending prior to the beginning of such fiscal year.

This section of the proposed amendment would allow the U.S. Congress to override the first two sections with a two-thirds vote, allowing the federal government to deliberately run a deficit if enough politicians sign onto it.

Section 4. Any bill to levy a new tax or increase the rate of any tax shall not become law unless approved by two-thirds of the whole number of each House of Congress by a roll call vote.

This section of the proposed amendment really isn’t required to produce a balanced budget. Nice idea though, if one that should be covered by its own amendment.

Section 5. The limit on the debt of the United States held by the public shall not be increased, unless two-thirds of the whole number of each House of Congress shall provide for such an increase by a roll call vote.

This is another section that sounds good in theory, but not so much in practice. It applies only to the portion of the U.S. national debt that is “held by the public”, which is significantly less than the “public debt outstanding”, which would cover the whole ball of wax.

Section 6. Any Member of Congress shall have standing and a cause of action to seek judicial enforcement of this article, when authorized to do so by a petition signed by one-third of the Members of either House of Congress. No court of the United States or of any State shall order any increase in revenue to enforce this article.

Section 7. The Congress shall have the power to enforce this article by appropriate legislation.

These sections provides the teeth for enforcing the amendment’s requirements, while also preventing judicially-ordered tax increases as a potential remedy should such a case be brought to court.

Section 8. Total receipts shall include all receipts of the United States except those derived from borrowing. Total outlays shall include all outlays of the United States except those for repayment of debt principal.

This section provides the definition for how the U.S. Congress intends the words “total receipts” and “total outlays” will be interpreted by U.S. courts.

Section 9. This article shall become effective beginning with the second fiscal year commencing after its ratification by the legislatures of three-fourths of the several States.

This final section is the constitutional boilerplate for the timing of when the amendment would officially take effect.

Here’s how we might rewrite the first part of the proposed amendment to be more practical and to the point:

Section 1. Total outlays for any fiscal year shall not exceed one hundred five percent of the total receipts for the previous fiscal year.

Section 2. The Congress may provide for suspension of the limitations imposed by section 1 of this article for any fiscal year for which two-thirds of the whole number of each House shall provide, by a roll call vote, for a specific excess of total outlays over one hundred five percent of the total receipts for the previous fiscal year.

Section 3. The limit on the public debt outstanding of the United States shall not be increased, unless two-thirds of the whole number of each House of Congress shall provide for such an increase by a roll call vote.

The remaining sections would be the same as Sections 5 through 9 in the Senate Resolution.

We locked the amount of total outlays to the previous year’s tax receipts in our version of a balanced budget amendment. This provides an easy point of reference that already has a legal definition provided for in the body of the amendment itself. It’s also something that would be known well ahead of when Congress begins crafting a new annual budget.

We selected 105% since that’s would make the growth rate of government spending average a bit less than the average GDP growth rate the U.S. has typically experienced since the end of World War 2, which would apply for the fiscal year for which the U.S. Congress would be creating a budget, although the amendment writers could certainly select a different figure.

We’re not opposed to using 100% instead. After all, most U.S. households start with the assumption that they’ll only make as much money as they did last year when changing their household budgets from year to year. Why shouldn’t the U.S. federal government work the same way?




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