While the State of Texas operates within a spending limit contained in the Texas Constitution, the United States Constitution contains no such limitation. It is the omission of such a spending limit from the Constitution that has allowed the federal government to engage in deficit spending, resulting in the record levels of debt that the taxpayers of the United States must now (or eventually) repay. As a result of this unprecedented and reckless federal spending, President Obama signed the second national debt extension of his presidency on February 12, 2010, increasing the ceiling on the debt from $12.4 trillion to $14.3 trillion. As of August 17, 2010, the United States national debt figure stands at $13.3 trillion.
As the figures show (see below), national debt exceeds year-to-date gross domestic product and year-to-date federal tax revenue combined. Year-to-date federal spending also outstrips federal tax revenues by a factor of 2.5. Congressional spending is rapidly becoming unsustainable, making swift and decisive action necessary to limit the ability of the federal government to spend without regard to revenues, debt, or future implications when our creditors call our debts due.
U.S. National Debt: $ 13,341,232,000,000
Debt per Citizen: $ 43,033
Debt per Taxpayer: $ 120,313
YTD Federal Spending $ 3,586,229,000,000
YTD U.S. GDP: $ 9,221,856,000,000
YTD Federal Tax Revenue: $ 1,374,276,000,000
Sources: U.S. Department of the Treasury, U.S. Census Bureau, U.S. Federal Reserve System, & the Congressional Budget Office. Where necessary, figures rounded to nearest $1,000,000.
While federal deficit spending has been a problem for decades, the response to the recent economic recession together with the other fiscally disastrous policies of the Obama Administration has greatly exacerbated the problem. After the Bush Administration initiated government bailouts of private businesses in late 2008, the Obama Administration has continued full-steam with the same, failed notion that government spending would save the economy. In the same vein, the trillion dollar health care reform enacted by Congress and President Obama is the culmination of almost a century of expansion of the welfare state and the federal spending that goes with it.
The Debt Crisis
The risk to which our country is exposed as a direct result of federal profligacy is neither academic nor philosophical. Nations can go bankrupt. Greece received a multi-billion dollar bailout from the European Union and the International Monetary Fund (IMF) earlier this year in order to pay debts due to its creditors. Greece’s government debt to GDP ratio of 113 percent was staggering, but at almost 70 percent and growing daily, the U.S. debt to GDP ratio is not far behind.i
In a recent analysis, the IMF highlighted the perilous situation in which our nation finds itself:
Under current policies, the United States federal debt is projected to grow rapidly due to a combination of large budget deficits before and during the crisis, as well as, over the medium term, demographic factors and healthcare inflation. As part of the medium term adjustment, the authorities would need to raise taxes and/or cut transfers substantially to avoid an undesirable escalation of the debt-to-GDP ratio. The longer the wait, the larger the necessary adjustment will be and the greater the burden on future generations.ii
Delving deeper into the IMF’s analysis, Boston University economist Laurence J. Kotlikoff points out that:
The IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.iii
Both Kotlikoff and the IMF agree that immediate reforms are needed to address both the revenue and spending sides of America’s deficit crisis. However, Texas’ experience demonstrates that spending reductions can be successfully employed to address budget crises. Similarly, New Jersey recently slashed state spending as a preferable alternative to tax hikes to balance its budget. At the federal level, even the Congressional Budget Office (CBO) paints a bleak budget picture and stresses the importance of tackling the budget deficit immediately:
Over the long term, the budget outlook is daunting…The sooner that long-term changes to spending and revenues are agreed on, and the sooner they are carried out once the economic weakness ends, the smaller will be the damage to the economy from growing federal debt. Earlier action would require more sacrifices by earlier generations to benefit future generations, but it would also permit smaller or more gradual changes and would give people more time to adjust to them.iv
While much damage is already done, the bleeding from the Treasury must be stopped immediately. A federal balanced budget amendment to the United States Constitution is necessary to avoid massive tax increases, default of the federal government, and a fully-eroded public trust. Experience shows that relying on Congress to restrain spending will not work: Constitutionally restricting spending is the only way to protect America’s long-term fiscal
stability. Increasing taxes to cover reckless federal spending will only damage the economy further while barely delaying the inevitable crisis that will always follow fiscal profligacy.
A Balanced Budget Amendment An amendment to the United States Constitution that requires annual federal appropriations to not exceed annual federal revenues (with an exception for times of national emergency) would require the federal government to live within its means rather than engaging in deficit spending and debt issuance that perils the entire nation. A “national emergency” exception that covered crises such as wars should be included in any balanced budget amendment; few would argue that the deficit spending during World War II was undesirable and a balanced budget amendment is intended to protect rather than endanger the nation.
The chart on this page
demonstrates that over the past half-century, federal spending has typically outstripped federal
revenues, thus contributing to
national indebtedness. Since
2007, however, the gap between spending and revenue has exploded, resulting in a projected $1.5 trillion federal budget deficit in 2010.
The CBO points out that some of the federal spending explosion
can be attributed to the recent financial downturn, but rightly
stresses that federal overspending is a much longer-term problem:
The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession and turmoil in financial markets. However, the growing debt also reflects an imbalance between spending and revenues that predated those economic developments.v
A balanced budget amendment would tie these two numbers (spending and revenue) together, preventing deficit spending and related debt. Historically, attempts to enact such an amendment at the federal level have proven unsuccessful. However, the United States Constitution gives the states the power to address national problems when our federal government refuses to yield. Under Article V, an amendment to the Constitution must be considered if two-thirds of state legislatures call for a convention. Once a convention is called, the amendment is adopted if three fourths of the state legislatures or state conventions ratify it.
Although the convention method has never been used to amend the Constitution, a large number of states petitioning for a convention has prompted Congress to act in the case of the Seventeenth Amendment (election of U.S. Senators), the Twenty-First (repeal of prohibition), Twenty-Second (Presidential term limits), and Twenty-Fifth (Presidential succession) Amendments.vi
While a balanced budget amendment to the United States Constitution would undoubtedly be difficult to achieve, Alexander Hamilton noted in the concluding paper of The Federalist that “the persons delegated to the administration of the national government will always be disinclined to yield up any portion of the authority of which they were once possessed.” This is why, he noted, when the federal government refuses to act in the national interest, “we may safely rely on the disposition of the State legislatures to erect barriers against the encroachments of the national authority.”
In 1979, the State of Texas formally petitioned the United States Congress to enact a federal requirement under which:
The total of all federal appropriations made by the Congress for any fiscal year may not exceed the total of all estimated Federal revenues for that fiscal year. Source: United States Senate Congressional Record, January 15, 1979; page 134
Many states rallied for this federal balanced budget amendment, but fell just short of the 34 applications required for a convention under Article V. The introduced version of the resolution passed by the Texas Legislature argued that:
The unbridled constitutional power of Congress to “borrow money on the credit of the United States” has resulted in almost perennial deficit spending and the steady growth of a national debt to a dangerous level…Because of the ability to spend now and pay much later, the federal government has been willing to fund programs of questionable benefit and need.vii
While Texas’ petition for a balanced budget amendment – together with petitions from numerous other states – technically remains current, the petition should be reissued by the 82nd Legislature so that the call for a constitutional convention on the narrow topic of a balanced budget amendment is reinvigorated. Requesting a convention on the single topic of a balanced budget amendment would help ensure that any convention remains focused on the issue at hand and does not undertake broader revisions to our nation’s founding document. Indeed, speculative concerns that a convention could result in a broader re-write of the Constitution must be balanced against the possible bankruptcy of our nation if a constitutional prohibition against deficit spending is not enacted. Furthermore, three-fourths of states must approve amendments to the Constitution under the convention process which would provide adequate protection against unfavorable changes to the Constitution.
Federal spending is growing at an unsustainable level, adding to the national debt that future generations will be forced to repay: A balanced budget amendment is necessary to permanently arrest the problem of deficit spending.
– Federal spending has outstripped federal revenues almost every year since 1965.
– This trend has exacerbated since 2007, leading to a projected federal deficit of $1.5 trillion in FY2010.
– The federal government cannot sustain this deficit spending in perpetuity, the burden on taxpayers will become too great, and the credit of the United States will be stretched to breaking point.
A balanced budget amendment is imperative to ensure that the federal government lives within its means and stops adding to the deficit.
– A federal balanced budget amendment would tie federal spending to federal revenue each year.
– This would prevent the deficit spending and debt that all taxpayers will eventually have to repay.
– Relying on each individual Congress to balance the budget has proven to be a failed approach. A constitutional balanced budget requirement is necessary because it will prevent all future Congresses from spending that the nation cannot afford.
– Texas’ experience shows that a balanced budget amendment works:
– The State of Texas has both a constitutional spending limitation that prevents deficit spending and one of the strongest fiscal records of any state in the nation.
– Texas’ spending limitation prohibits deficit spending and restrains budget growth to a measure of the economic growth of the state.
– The constitutional balanced budget requirement under which the State of Texas operates yields significant fiscal benefits to the state.
– Despite two budget shortfalls (when revenues have fallen below the estimated cost of growing government programs and services to keep pace with population and cost growth), the State of Texas has netted a $26.9 billion surplus since 1994.
– If the federal government was to operate under similar fiscal constraints, taxpayers would not be facing the multi-trillion dollar budget deficit that they face today.
– Texas can be a leading advocate for a balanced budget amendment to the U.S. Constitution and must pass a resolution in the 82nd Legislature in order to get the process underway.
[This is part one of two TCC Talking Points documents focusing on spending limitations. Part two will focus on strengthening the spending limitation contained in the Texas Constitution.]
i “Is Greece Europe’s Fannie and Freddie?” Randall Forsyth, Barron’s Online, February 11, 2010.
ii United States: Selected Issues Paper, International Monetary Fund, July 2010.
iii “U.S. is Bankrupt and We Don’t Even Know It,” Laurence Kotlikoff, Bloomberg Online, August 10, 2010.
iv The Congressional Budget Office, “The Long-Term Budget Outlook,” June 2010.
v The Congressional Budget Office, “The Long-Term Budget Outlook,” June 2010.
vi James Kenneth Rogers, The Other Way to Amend the Constitution: The Article V Constitutional Convention Amendment Process, Harvard Journal of Law and Public Policy, 1005, 1008 (2007).
vii Text of House Concurrent Resolution 31 (65R) as introduced.
For more on this, and other important issues go to http://txcc.org/.