Posted on 12/30/2011 2:48:45 PM PST by JerseyanExile
SECTION 1. The outstanding debt of the United States shall not be increased above its level on the date of ratification of this amendment, unless three-fifths of the whole number of each House shall provide by law for such an increase by a rollcall vote.
SECTION 2. Should the President determine that expenditures appropriated by law will necessitate borrowing in excess of the limit provided in Section 1 during any fiscal year, he or she shall impound any expenditures as necessary and expedient to remain within said limit. The compensation of members of Congress or of Judges of the supreme and inferior courts may not be reduced under this provision.
SECTION 3. The limit on the outstanding debt of the United States may be reduced at any time to a level no lower than the then outstanding debt by a majority vote of both Houses of Congress by a rollcall vote.
SECTION 4. Outstanding debt shall include all obligations backed by the full faith and credit of the United States, as well as all legal tender obligations and monetary instruments issued by the United States and its agencies. It does not include contingent claims of the United States and its agencies, and excludes obligations backed by the full faith and credit of the United States held as backing for legal tender obligations and monetary instruments issued by the United States and its agencies.
INTRODUCTION
The Budget Control Act of 2011 (S365) requires both Houses of Congress to vote on an unspecified Balanced Budget Amendment sometime between Sept. 30 and Dec. 31, 2011. While a Constitutional limit on deficit spending would be an excellent idea, an ineffective or ill-written Amendment would be worse than none at all. The primary contender for a Balanced Budget Amendment at present is House Joint Resolution 2 (HJR2), introduced by Rep. Bob Goodlatte (R-Va) in January of 2011. HJR2 is identical to the proposed Amendment that passed the House and nearly passed the Senate in 1995, and which was reintroduced in 1997. It already has 240 sponsors, out of 290 necessary to meet the 2/3 requirement if all House members are present for the vote. Unfortunately, HJR2 has an unworkable key provision, while some of its other provisions are actually too weak to achieve its intended goal. A greatly strengthened and clarified Improved Balanced Budget Amendment that corrects these deficiencies is presented above. This note compares the Improved Balanced Budget Amendment section by section to HJR2, which is included for comparison below as Exhibit A. It then goes on to discuss Senate Joint Resolutions 10 and 23, and House Joint Resolution 1, which go somewhat further than HJR2.
THE NATIONAL DEBT CEILING
Section 1 of HJR2 requires the budget to balance every fiscal year unless a 3/5 majority of both Houses approves of the deficit. However, this is unworkable, since there is no way to say which of several appropriations (or tax cuts) is the one that drives expenditures over receipts and therefore requires a 3/5 vote. Furthermore, fluctuations in the timing of receipts and/or expenditures may create surpluses in one year that ought to be carriable over to the next year, yet this is prohibited by this wording. The proposed Improved Amendment eliminates this Section altogether. Section 2 of HJR2 assumes that there is a ceiling on the national debt, and requires a 3/5 vote of both Houses to increase it. This is where its real teeth lie, and so this has been built into Section 1 of the Improved Amendment. A hard limit on outstanding debt means that, somehow or other, outlays cannot exceed receipts, so this makes Section 1 of HJR2 redundant. However, the HJR2 Section 2 merely states that there shall be a “national debt limit,” but not that it may not be exceeded. This has been corrected in Section 1 of the Improved Amendment. Furthermore, HJR2 does not state what the initial value of the debt limit should be. The Improved Amendment gets down to business immediately, by setting the initial limit at the value of the debt on the date of ratification. If this is deemed too harsh, the initial limit could instead be set a few percent above the actual debt on the date of ratification.
THE NO CHICKEN MECHANISM
A big weakness of the existing statutory national debt limit has been that it often leads to a game of Budgetary Chicken, in which each faction threatens to shut down the entire government if it doesn’t get its way. This occurred in 1999 and again in 2011, and HJR2 would do nothing to prevent the recurrence of such crises. Section 2 of the Improved Amendment corrects this defect simply by requiring the President to “impound any expenditures as necessary and expedient to remain within said limit.” This gives the President the authority as well as the responsibility to prioritize which government expenditures are most essential and which are expendable. He or she may gore any sacred cow spending boondoggle, whether it be a bridge to Ketchikan or an unnecessary military base, whenever the national debt limit is in danger of being reached. The only way Congress can prevent its pork barrel powers from being threatened by this provision is to come up with a budget that actually balances. In deference to the principle of Separation of Powers, the only expenditures that are placed off limits to Presidential impoundment are the salaries of members of Congress and of Federal Judges.
THE LOCK-IN OPTION
A further weakness of HJR2 is that it makes no provision for reducing the debt limit. If a frugal Congress succeeds in reducing the debt, it should be allowed to lock in its gains in order to prevent them from being squandered by subsequent Congresses. Section 3 of the Improved Amendment allows Congress to do this by a simple majority vote, to any level at or above the then outstanding debt. This also gives Congress the option to “bank” any surpluses it realizes by leaving the existing limit in place or by only partially lowering it to the new debt level.
THE BERNANKE-BLOCKER CLAUSE
Perhaps the biggest shortcoming of HJR2 is that it provides no definition of the “outstanding debt,” and in fact leaves the door open for the Federal Reserve to do an end run around the debt ceiling. Since 2008, the Bernanke Fed has encroached on the Constitutional power of Congress to make all spending decisions by printing money, in effect, to bail out failing companies and to buy up incompetently originated subprime mortgage-backed securities. But in addition to printing $190 billion in new Federal Reserve Notes (a 24% increase), the Fed has also incurred an even more dangerous $1.6 trillion in new electronic reserve deposit obligations to finance this spending, thereby tripling the Monetary Base. These reserve deposit obligations are legal tender for the clearing of checks, and may be converted into currency at any time by the banks that hold them. Section 4 of the Improved Amendment therefore defines the “outstanding debt” to include all legal tender obligations and monetary instruments issued by the Fed or other agency, in addition to regular Treasury debt. To avoid double counting, any Treasury debt held as backing for these legal tender obligations is excluded from the count. Note, however, that if the Fed were to sell Treasury debt in order to bail out an AIG or a Fannie Mae, as it did in 2008, the bonds it sold would then become part of the “outstanding national debt.” In order for Congress to regain control of the outstanding debt, it will have to rein in the Fed’s ability to make such unilateral spending decisions. Section 4 of the Improved Amendment explicitly leaves contingent claims such as FHA mortgage guarantees, FDIC deposit insurance, projected Social Security and Medicare liabilities, etc., out of the debt limit until such time as Congress actually appropriates funds to meet their shortfalls, if it so chooses. However, any Treasury debt actually held by these agencies to meet these contingent claims would be counted as already outstanding.
OTHER UNNECESARY PROVISIONS OF HJR2
Section 3 of HJR2 requires the President to send Congress each year a proposed budget that is projected to balance. This empty provision is clutter that has no place in a Constitutional Amendment. The President is always welcome to propose a budget that is projected to balance, but it is up to Congress to enact one that actually does balance. Section 4 of HJR2 would require a majority of the whole number of each House for any tax increase, rather than just a majority of those present as currently, and also requires a rollcall vote. I rather like this idea, since it would make it somewhat harder to raise taxes. However, this section is not an intrinsic part of balancing the budget, and so I have not included it in the Improved Amendment. Section 5 of HJR2 would waive the national debt limit in any year in which a declaration of war is in effect. However, this is unnecessary, since in any serious war there would be no trouble finding the 3/5 majority required to raise the debt ceiling. At the same time, it is counterproductive, since even limited conflicts would give Congress carte blanche to raise the debt without a 3/5 vote. For example, a declaration of a State of War might be deemed suitable in a situation like Vietnam, the Iran hostage crisis, or Afghanistan. Yet if 3/5 of both Houses do not feel that such a limited conflict warrants raising the debt ceiling, why suspend it? Congress can always finance a limited intervention within a balanced budget by reducing other appropriations. This section of HJR2 could even induce Congress to maintain a perpetual State of War against the likes of the Duchy of Grand Fenwick (h/t Peter Sellers’ 1959 movie, The Mouse that Roared), just to allow itself unconstrained deficit spending on other programs. It has therefore been eliminated from the Improved Amendment.
Section 6 of HJR2 seems to say that as long as Congress merely estimates that the budget is going to balance, anything goes. Congress really can count, if it tries hard enough. The Improved Amendment’s Section 2, which authorizes the President to whack whatever he or she wants to in order to keep the debt under the limit, gives Congress plenty of incentive to make sure its appropriations and revenues do stay within the limit. The HJR2 Section 6 has therefore been eliminated. Section 7 of HJR2 defines receipts and outlays. This unnecessary Section has been dropped, and replaced with a definition of the national debt in the Improved Amendment’s Section 4. Finally, Section 8 of HJR2 postpones the effect of the Amendment for at least two years after ratification. Incumbent members of Congress understandably crave one last binge of deficit spending before giving up the bottle, but if a Balanced Budget Amendment is serious, it should get serious immediately! The Improved Amendment therefore eliminates this provision. Congress always can, by a 3/5 vote, pass a one-time initial increase in the ceiling while it figures out how to live within the Amendment. Alternatively, it could set the initial ceiling a few percent above the initial actual debt level, as suggested above.
POSSIBLE MODIFICATIONS OF THE IMPROVED AMENDMENT
The Improved Amendment sets the supermajority vote required to increase the debt limit at 3/5 of each House, since this is the threshold used in HJR2, in the 1995/1997 proposed amendment, and in Senate Joint Resolutions 10 and 23 discussed below. Serious consideration should be given to more a stringent requirement, such as a 2/3 majority in each House. However, the lower 3/5 requirement would be more likely to pass Congress and be ratified by the states. Section 2 of the Improved Amendment leaves it entirely up to the President to determine when the debt ceiling is in danger of being reached and to begin impounding spending. In order to discourage the President from invoking this power when there is no real danger of the debt limit being reached, Congress may wish to restrict this responsibility to times when the actual debt is within some percentage, say 5%, of the debt ceiling.
SENATE JOINT RESOLUTIONS 10 AND 23 AND HJR1 Senate Joint Resolution 10 (SJR10), introduced by Sen. Orrin Hatch (R-Utah) on March 31, 2011, incorporates all the provisions of HJR2, plus three additional provisions. It has 47 cosponsors as of Sept. 20, 2011. An identical proposal, designated SJR 23, was introduced by Sen. Mitch McConnell (R-Ky.) on June 29, 2011, and has 46 cosponsors. Section 2 of SJR10/SJR23 provides that “Total outlays for any fiscal year shall not exceed 18 percent of the gross domestic product of the United States for the calendar year ending before the beginning of such fiscal year, unless two-thirds of the duly chosen and sworn Members of each House of Congress shall provide by law for a specific amount in excess of such 18 percent by a roll call vote.” While I personally would like to see the size of the federal government reduced, this provision of the Senate proposal has the same problem as Section 1 of HJR2, namely that it will be impossible to say which of several appropriations is the one that exceeds 18 percent of GDP. A restriction on spending relative to GDP could also politicize the calculation of GDP. A Constitutional limit on borrowing, as in the proposed Improved Amendment, is equally consistent with big government and high taxes or small government with low taxes, but at least it will rule out crowd-pleasing big government with low taxes. A Balanced Budget Amendment will also be easier to pass Congress and be ratified by the states if it does not at the same time try to restrict spending. Section 4 of the Senate proposal states, “Any bill that imposes a new tax or increases the statutory rate of any tax or the aggregate amount of revenue may pass only by a two-thirds majority of the duly chosen and sworn Members of each House of Congress by a roll call vote. For the purpose of determining any increase in revenue under this section, there shall be excluded any increase resulting from the lowering of the statutory rate of any tax.” This provision admirably tries to make it more difficult to raise taxes, but again this extension will make it harder for the Amendment to pass Congress or be ratified by the states. The second sentence would even allow the top marginal tax rates, say, to be increased with a simple majority vote, provided this were coupled with reductions in the lower marginal tax rates that are projected to more than offset the increases. I don’t think this is what the Senate drafters had in mind. And because the net revenue effect of a complex bill can be only imperfectly estimated, this provision would be an invitation to litigation in the courts. Section 8 of SJR10/SJR23 provides “No court of the United States or of any State shall order any increase in revenue to enforce this article.” Section 2 of the proposed Improved Amendment makes this provision unnecessary, since it clearly rests the responsibility for staying within the debt ceiling on the Executive branch through discretionary spending cuts, and leaves no confusion as to whether the courts should intervene or if ad hoc revenue increases would be permitted. In addition to HJR2, discussed above, Rep. Goodlatte also introduced at the same time another Balanced Budget Amendment, which has been designated House Joint Resolution 1. It is very similar to HJR2, but in addition restricts outlays to 20% of economic output (reduced to 18% by the House Judiciary Committee), with a 2/3 supermajority to override, and also requires a 2/3 supermajority of each House for any bill to raise revenue, instead of just a majority of the whole number as in HJR2. It is therefore very similar to SJR10/SJR23 except for the omission of the latter’s Section 8. Although HJR1 passed the House Judiciary Committee on June 23, 2011, it had only 133 co-sponsors as of Sept. 17, and so is not as much in contention as HJR2, at least as far as the House of Representatives goes.
EXHIBIT A
HJR2, as introduced Jan 5, 2011 by Rep. Bob Goodlatte (R-Va) and referred to the House Judiciary Subcommittee on the Constitution Jan. 24, 2011. As of Sept. 17, HJR2 had 240 co-sponsors. Except for the optional effective date in the last section, HJR2 is identical to the proposed amendment that had been passed by the House and was under consideration by the Senate Feb. 15, 1995, and which was reintroduced in 1997.
SECTION 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a rollcall vote. so declared by a joint resolution, adopted by a majority of the whole number of each House, which becomes law. SECTION 6. The Congress shall enforce and implement this article by appropriate legislation, which may rely on estimates of outlays and receipts. SECTION 7. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except for those for repayment of debt principal. SECTION 8. This article shall take effect beginning with the later of the second fiscal year beginning after its ratification or the first fiscal year beginning after December 31, 2016.
SECTION 3. Prior to each fiscal year, the President shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which total outlays do not exceed total receipts.
SECTION 4. No bill to increase revenue shall become law unless approved by a majority of the whole number of each House by a rollcall vote.
SECTION 5. The Congress may waive the provisions of this article for any fiscal year in which a declaration of war is in effect. The provisions of this article may be waived for any fiscal year in which the United States is engaged in military conflict which causes an imminent and serious military threat to national security and is so declared by a joint resolution, adopted by a majority of the whole number of each House, which becomes law.
SECTION 6. The Congress shall enforce and implement this article by appropriate legislation, which may rely on estimates of outlays and receipts.
SECTION 7. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except for those for repayment of debt principal.
SECTION 8. This article shall take effect beginning with the later of the second fiscal year beginning after its ratification or the first fiscal year beginning after December 31, 2016.
I stumbled across this the other day by chance and after reading it through, decided it would be worth posting here. It seems to point out some of the potential problems with the currently proposed Balanced Budget Amendments, and tries to correct them. The language of this version also seems much simpler and cleaner, certainly something one would want in an amendment.
I just realized how I mixed up the formatting at the end of the first section there. Sorry about that, I still haven’t gotten used to using HTML.
I'm glad to see that people are still working on this. I'm in favor of a balanced budget amendment -- but the previous one was pretty loop-holey. After a quick scan, this appears to be on the right track.
SECTION 1. The outstanding debt of the United States shall not be increased above its level on the date of ratification of this amendment, unless three-fifths of the whole number of each House shall provide by law for such an increase by a rollcall vote.
SECTION 2. Should the President determine that expenditures appropriated by law will necessitate borrowing in excess of the limit provided in Section 1 during any fiscal year, he or she shall impound any expenditures as necessary and expedient to remain within said limit. The compensation of members of Congress or of Judges of the supreme and inferior courts may not be reduced under this provision.
SECTION 3. The limit on the outstanding debt of the United States may be reduced at any time to a level no lower than the then outstanding debt by a majority vote of both Houses of Congress by a rollcall vote.
SECTION 4. Outstanding debt shall include all obligations backed by the full faith and credit of the United States, as well as all legal tender obligations and monetary instruments issued by the United States and its agencies. It does not include contingent claims of the United States and its agencies, and excludes obligations backed by the full faith and credit of the United States held as backing for legal tender obligations and monetary instruments issued by the United States and its agencies.
Can someone parse Section 3? I can't seem to make it make sense...
I believe it means that if the federal government actually lowers its debt in the future, a majority vote will allow the debt limit to be lowered even further to the then current, reduced amount. The debt limit can be ratcheted down.
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