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What a Downer



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The House of Representatives is set to vote on a balanced-budget amendment to the Constitution. The proposed amendment is disappointing — to say the least. It would restrict the government’s capacity to borrow (but not by much), and it would do nothing about total spending, which is the real problem. 

Basically, all the House resolution would do is require a bare supermajority (three fifths) of Congress to override the prohibition on deficit spending. There is no limitation on taxation or total spending, so the amendment could be enforced by a catastrophic across-the-board tax increase. Instead of spending at 25 percent of GDP, taxing at 15 percent of GDP, and borrowing the rest (as the Obama budgets have done), we could find ourselves both taxing and spending at 25 percent of GDP. Without a strict limitation on taxation and spending, a balanced-budget amendment by itself could do more harm than good. As Sen. John Cornyn (R., Tex.) noted yesterday, “Let’s all remember that the disease in Washington is out-of-control spending, and budget deficits and the debt are really symptoms of that disease.”

Senator Cornyn has been pushing House members to consider the Senate version of the balanced-budget amendment (S. J. Res. 10), which is far better than the House version. It would require a two-thirds supermajority to override the balanced-budget requirement as well as a two-thirds majority for tax increases, and — crucially — it would limit spending to 18 percent of the previous year’s GDP. As I noted earlier this year in a paper for the Texas Public Policy Foundation, an absolute spending limit at 18 percent of GDP would push both taxes and spending below the historic revenue-maximizing point of about 20 percent.  

The amendment would have to be ratified by three fourths of the state legislatures (38 states), which would take several years at the very earliest. Once the amendment is ratified, its provisions would go into effect over another five years. That’s plenty of time for a gradual reduction of spending to meet the 18 percent limit.  

Conservatives who don’t like the constitutional-spending-limit idea are expressing (a) natural fear of messing with the Constitution and (b) mild horror at the concept of involving federal courts in the budget process. But (a) the Constitution is already upside down: It serves mostly to ratify every expansion in federal power no matter how clearly it violates the Bill of Rights or the whole concept of enumerated-powers constraints. And (b) while I share the horror at involving federal courts in any aspect of legislation, an across-the-board budget cut is among the least offensive genres of judicial legislation that I kind think of, and it certainly is not nearly so offensive as what we came to expect from the Warren and Burger Courts.  

There are a couple more things to consider, which to my mind should be the overriding considerations. First, the Supreme Court has given sweeping scope to the federal government’s power to tax and spend “for the general welfare.” There is no limit on using that power to tax one group for the benefit of another. This creates a long-term danger that the federal government will fall into the hands of a semi-permanent coalition of rent-seekers who use the machinery of government to transfer wealth from the minority to themselves. To paraphrase one of Beaudelaire’s observations on l’amour, progressive taxation is born of a noble instinct — charity — but is quickly corrupted by the passion to possess other people’s property. A society such as ours, in which one half of the population pays no income tax and enjoys the benefits of government at the expense of the other half, is a society based more on the principle of theft than on the principle of charity. A constitutional cap on taxing and spending set at 18 percent of GDP would guarantee that a rent-seeking majority can confiscate at most 18 percent of society’s wealth. It would not eliminate progressive taxation, but it would prevent progressive taxation from swallowing the whole country.

It would also guarantee that the federal government can ruin at most 18 percent of the economy. The biggest obstacle we face to economic progress is the lack of economic freedom due to mad levels of regulation and a government that eats precious investment capital by taxing and borrowing. The United States — long among the freest economies in the world — is rapidly descending the charts of economic freedom. As Whole Foods co-founder John Mackey argued in a great piece in the Wall Street Journal, “Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending — money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs.” 

In today’s political climate, a balanced-budget amendment with strict spending limits may have dim prospects of getting the required two-thirds vote in each chamber of Congress and the required 38 states. But at some point, Americans are going to get really tired of high unemployment, anemic growth, and general malaise, and they’re going to stop believing the empty promises of those who say we need even more government to solve a problem that is clearly the fault of too much government. What made America great over two centuries was a combination of economic freedom, limited government, and self-reliance. We can only hope that those ideals will once again command the adherence of a great majority of us. At that point, ratification of a strong constitutional limit on taxing, spending, and borrowing will have a much greater chance of ratification than it does today.  

Rebuilding that consensus will take time — all the more reason to start now.     

— Mario Loyola is director of the Center for Tenth Amendment Studies at the Texas Public Policy Foundation



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