House conservatives are celebrating Tax Day today by setting aside the issue of taxes for a moment. Instead, they are taking aim at the root cause of high taxes: excessive government spending. The constitutional amendment they propose today will not pass the current Congress, but it is important because its authors — Reps. John Campbell (R., Calif.), Jeb Hensarling (R., Tex.) and Paul Ryan (R., Wis.) — have finally found a simple and practical supply-side formula for limiting the size of government. They are establishing a worthy goal — a fiscal policy worth fighting for and moving toward.
“We’re not naïve,” Hensarling told National Review Online Monday. “We know who controls Congress. But this is a critical debate to have and to discuss with the American people. It needs to start today — it really needed to start yesterday.”
At a press conference today, these conservatives will announce their constitutional amendment to limit the growth of government spending so that it cannot outpace the nation’s economic growth. This would draw an important line in the sand by denying the federal government a greater share than the 18.3 percent it currently skims from the nation’s annual gross domestic product (GDP), and it would remove nearly all incentives for Congress to raise taxes.
The Spending Limit Amendment (SLA) would require the president to propose a budget that increases spending by no more than the growth in U.S. GDP, and would restrain congressional appropriators from exceeding this amount. Although it does not directly require a balanced budget, the SLA would almost certainly create one within just a few years. As a constitutional amendment, it could not be easily overridden, and it would also force the Congress to finally face up to the looming issue of entitlement reform quickly: without reform, the federal government will spend 18.2 percent of GDP just on Social Security, Medicare and Medicaid in 2030, according to the Congressional Budget Office.
John Campbell, who ran for Congress on a platform of spending restraint, said on Friday that Congress and presidents of both parties have failed to deliver spending restraint. “In 43 out of the last 48 years, Congress has spent more money than it took in,” Campbell observes. “That goes through Republican Congresses, Democratic Congresses, Republican presidents, Democratic presidents, and every combination thereof.”
The last serious attempt to control spending came in 1995, when the Senate failed by just one vote to pass the Balanced Budget Amendment. Although it is proposed anew in each Congress, the BBA has never again come so close to passage. And despite its virtues, conservatives have always been uneasy with that amendment because it gives Congress an easy way out — just raise taxes.
“The problem with the Balanced Budget Amendment is that it creates a moral equivalence between tax increases and spending cuts,” said Brian Riedl, a budget expert at the Heritage Foundation. “The deficits are not the problem — runaway spending is the problem. As long as government continues to grow, you’re forcing either tax increases or bigger deficits.”
Another common program of fiscal discipline is “pay-as-you-go budgeting” or “Pay-Go,” a tool celebrated by the current Congress. Pay-Go bars additional mandatory spending or revenue losses above Congress’s projected budgetary baseline. The concept has proven itself to be a convenient fiction in the current Democratic Congress that adopted it — but even when faithfully followed, Pay-Go does not prevent or curb deficits at all. It merely requires spending to stay in line with the current Congressional budgetary framework — which is spending-heavy to begin with. To the extent that it puts any constraints on Congress, Pay-Go works against the taxpayer: it makes government wary of “losing” money through tax cuts; and it has the same easy work-around for new spending — just raise taxes.
A third and more stringent method of spending limitation was attempted in California in 1979, shortly after the landmark passage of Proposition 13. The so-called Gann spending limit would have blocked the legislature from spending tax money above a formula based on population growth and inflation. Gann enjoyed moderate success in controlling California’s spending until it was effectively undone by union-backed education- and transportation-spending referenda in 1988 and 1990. The Gann limit suffered from two flaws. Critics charged that its formula did not account sufficiently for the state’s economic growth; and it only limited the spending of revenues collected through taxation — there was nothing to prevent higher spending by tapping other revenue streams, like borrowing and fee increases.
The SLA also avoids the flaw that doomed the state of Colorado’s spending-limit provision, the Taxpayer Bill of Rights (TABOR). Although it served Colorado reasonably well for a decade after being passed in 1992, TABOR limited revenue collections rather than spending — a much more unpredictable factor. Each year, the government’s take was limited to the previous year’s collection, adjusted upward for inflation and population growth. As it happened, a single bad economic year in 2002 caused a collapse in revenue that forced huge spending cuts, but also left the government unable to bounce back to previous spending levels in the following year. This so-called “ratchet effect” helped special interests build the case to defang TABOR in 2005. Campbell said that the enacting legislation for the SLA could avoid this problem by using a three-year moving average of GDP growth. That’s a pretty safe bet — the U.S. has not had three straight years of nominal GDP contraction since the Great Depression.
“We’ve tried to learn from the other proposals,” Hensarling notes. Indeed, the earlier proposals’ flaws highlight the elegance of today’s amendment. No tax or fee increase or new bond issue can circumvent the limits of nominal GDP growth. And by definition, nominal GDP growth takes inflation, population growth, and economic growth into account. The SLA allows exceptions for war and for events extraordinary enough to attract a two-thirds congressional super-majority. And the only expenditure it does not cover is repayment of the federal debt.
“The Democrats campaigned in 2006 on deficits,” says John Campbell. “They came into office and — guess what? — deficits are now increasing again. But the public is rightfully cynical about both parties, and the public is right. So we want to set up this external discipline on spending, that makes whoever is in charge manage your money more wisely.”
President Bush’s success in cutting taxes has not translated to success in the field of limited government. The Spending Limit Amendment, even if it does not pass in the next few years, gives conservatives a credible and easily understood path in the direction of supply-side fiscal reform.
– David Freddoso is an NRO staff reporter.