By Robert Romano
Americans for Limited Government
In a recent email to supporters, Senator Jim DeMint (R-SC) proposed tying an upcoming vote to raise the $14.294 trillion national debt ceiling to a balanced budget amendment. Not a bad idea.
After all, why tie an increase in the debt ceiling to a single year’s budget cuts, when it could be tied to a requirement that all budgets be balanced? The DeMint proposal would require future Congresses to live within their means, and would be the first ever constitutional limit on Congress’ power of the purse.
The proposal still appears to be in a rough draft form, but the email gives some basic details. The amendment would “Require Congress to balance the federal budget each year… [p]revent Congress from spending more than 20 percent of GDP… [and] [r]equire a 2/3 super-majority vote to raise taxes”.
So, really, it’s a balanced budget/spending limit/tax cap amendment. This is a very good start in the right direction. It would limit how much Congress could spend in addition to requiring that the budget be balanced. That’s important because what good is a balanced budget without a cap on spending? If there were no limit on spending, Congress could just spend as much as it wants, and use confiscatory tax increases to balance the budget. Instead, under the DeMint proposal spending would be limited to 20 percent of the economy. And tax increases would require broad, bipartisan support.
The debt promises to leave future generations in an intractable situation if Congress does not stop spending now. With the $14 trillion national debt fast approaching 100 percent of the Gross Domestic Product, it is time to rein that debt in before it becomes impossible to ever pay back.
However, more could be done in the context of a constitutional amendment to guarantee the end result the American people desire. Here are some suggestions of what a comprehensive proposal could look like:
- Restricts spending and taxation to no more than 20 percent of economic output, except upon a formal declaration of war.
- Contains a balanced budget requirement.
- Requires a two-thirds supermajority in order to raise taxes.
- Upon a formal declaration of war, Congress shall be allowed to borrow upon the full faith and credit of the United States, but borrowed monies shall be kept in a separate war fund. The war fund would only be used for defense and security appropriations. Non-defense spending during war could additionally be limited to 10 percent of economic output.
- In the event of war, the balanced budget requirement would still be applied to non-defense spending. It would be up to Congress to then determine how much revenue to dedicate to the war effort, and how much for domestic spending, and therefore how much it felt comfortable borrowing for the war fund.
- When there is a surplus of revenue, the proceeds could be dedicated by Congress at least 25 percent towards debt repayment. All other surplus revenue would be returned to taxpayers in the form of tax refunds.
- The national debt may not exceed 60 percent of economic output. When it does, 15 percent of revenue shall be dedicated every year to debt repayment of principal owed. The 60 percent of GDP borrowing limit, and the 15 percent of revenue to debt repayment requirement, could be waived only upon a declaration of war.
- At all other times, including times of war, at least 10 percent of revenue shall be dedicated to debt repayment of principal owed, until the debt is retired, at which time spending and taxation in peacetime could be reduced to no more than 18 percent of economic output.
- It shall be illegal for the government to create money in the central bank to purchase national debt securities, or for the purposes of debt repayment of principal owed and interest owed.
Besides the balanced budget, spending limit, and tax cap, this proposal would go further by specifically restricting the growth of the debt. Right now, states flout their balanced budget requirements by borrowing money, and counting it as revenue.
So, in addition to a spending limit, there needs to be limits on borrowing, too. Restricting all borrowing to war spending would be a good way to do that. Then, the nation could get its fiscal house in order. Congress couldn’t spend more than it takes in, except during war, and then only for the war.
Interest owed would have to be paid out of revenue. This would prevent the Treasury from borrowing yet more money just to pay the interest payments on the debt, which now total over $200 billion. By the end of the decade, they will cost almost $1 trillion.
The proposal would also guarantee debt reduction: The principal owed gets repaid over time out of revenue, 10 percent of revenue every year, no matter what. This is important because the national debt has grown every year on end for the past 52 years. If there is no provision requiring that it be paid down, it probably never will be.
And it would be illegal for the Federal Reserve or any other organ of the government to print money to pay the debt. This would prohibit the current practice of the Fed to purchase U.S. treasuries, of which it already owns more than $1 trillion, and eliminate all future attempts to pay the debt with monopoly money.
Overall, this would drastically improve the nation’s fiscal outlook.
If enacted, about $300 billion would be dedicated to debt repayment on principal owed every year based on current dollars and budget figures. The $14 trillion national debt would be retired in 46 years if revenue failed to grow. If the economy booms, and revenue booms, it would be paid off in about 30 years or less.
By tying such a proposal to a must-pass vote on increasing the national debt ceiling, congressional Republicans could ensure that Congress would almost never need to increase the debt ceiling again. And it would fulfill their Pledge to America to “pay down the debt” by requiring that it be paid down over time.
Congress will never willingly rein itself in. The lesson the American people are learning is that unless the Constitution specifically requires frugality, parsimony, and fiscal prudence, it will never happen. Now is the time for strict constitutional restrictions that will save the nation from certain insolvency.
Robert Romano is the Senior Editor of Americans for Limited Government (ALG) News Bureau.Americans for Limited Government is a non- partisan, nationwide network committed to advancing free market reforms,private property rights and core American liberties.