7. Limit Debt

A Plan to Renew the Promise of American Life, Plank 7

Plank 6     Contents     Plank 8

Plank 7. Limit debt. 


Specific Recommendations

7.1. Establish, by constitutional amendment, an enforceable cap on total federal debt. The amendment should do all of the following: 1) permit no federal spending beyond current receipts, except for amounts borrowed in strict conformity with the amendment, 2) provide that authorization for any borrowing above the debt cap requires the approval of a majority of the state legislatures, 3) enforce the cap with presidential sequesters and impoundments, and 4) punish any breach of the cap with strong, credible penalties for the federal officials responsible for the breach. Good models to draw on in drafting such an amendment include the Do Your Job Amendment and the Compact for America Balanced Budget Amendment.

7.2. If necessary, in order to get around a runaway Congress, originate the debt limitation amendment via the states rather than Congress, that is, by way of an Article V convention. In order to put to rest all concerns about a runaway convention, coordinate the amendment drive by means of a legally binding interstate compact that includes the actual text of the proposed amendment and the rules for a brief plebiscitary convention, whose sole purpose is to vote up or down on that amendment without change.


Explanation

To get our debt under control, we have to limit Congress’s power to borrow.

Debt is like a disease. Either you control it, or it controls you. The antidote to debt is fiscal common sense—pay-as-you-go. The five rules of fiscal common sense are: limit spending, tax lightly, borrow the minimum, maintain a surplus, pay down debt. Today, of course, our federal government does none of these things. And it will continue to do none of them until we change politicians’ incentives.

Restoring pay-as-you-go requires reestablishing popular control over spending and debt, which is also vital to the survival of popular government.

Jefferson once said his only quibble with the U.S. Constitution was that it needed an amendment removing Congress’s power to borrow. I wouldn’t go quite that far. I think Congress does need to borrow on occasion—to fight an unexpected defensive war, for example. Running an occasional deficit is not the end of the world, nor is maintaining a modest debt. The goal shouldn’t be to avoid debt but rather to keep the total amount of debt manageable. And to be manageable, debt has to be continuously shrinking as a share of our income—growing less fast than our ability to repay it. That’s the golden path.

But while a modest debt is acceptable, Congress’s modern, deeply ingrained habit of running large chronic deficits is not. That vice needs to be cured.

In peacetime a healthy nation will run regular, modest surpluses. To run surpluses, we need a firm, enforceable spending cap. To enforce the spending cap, we in turn need a firm, enforceable debt cap.

In other words, to cap spending—cap debt.

And to cap debt, it of course helps to restore sound money. When the money supply is limited, government is inevitably forced to live within its means. But our focus here is to discuss how to go about capping debt.

The evidence of the past few decades makes it clear that curbing the borrowing power will almost certainly require a formal constitutional amendment establishing an enforceable debt ceiling. Congress has proven itself completely unwilling or unable to adhere to a statutory debt ceiling. The constitutional amendment should do all of the following: 1) permit no federal spending beyond current receipts, except for amounts borrowed in strict conformity with the amendment; 2) provide that authorization for any borrowing above the debt cap requires the approval of a majority of the state legislatures; 3) enforce the debt ceiling with presidential sequesters and impoundments; 4) punish any breach of the ceiling with credible penalties for the federal officials responsible for the breach.

Since Congress won’t curb its own powers voluntarily—it will either refuse to propose the needed amendment, or make sure it contains loopholes—it’s my opinion that we’ll have to propose the amendment by way of an Article V convention of the states for proposing amendments. The Founders gave us the Article V alternative proposal precisely to address the kind of crisis we currently face.

And it is a crisis. Absent a constitutional amendment that curbs Congress’s power to borrow, our government will go bankrupt sometime in the next twenty to thirty years. When that happens, we may have a popular “revolution,” but not necessarily a happy one.

There are three ways, basically, to dispose of a debt: repay it, redefine it, or renege on it. Or, to put it another way: tax it away, inflate it away, or refuse to pay. (Inflating it away can take a soft or a hard form. The soft form is your garden-variety currency debasement, which is what our Federal Reserve does. The hard form is a straight-up devaluation of the currency by the government, for example, telling us that one dollar is now worth, say, only fifty cents. Every one of these avenues is tantamount to taxation. The first, repayment, is the best, or at least “the least bad,” because it is the most honest and transparent and gives the people a chance to weigh in through the legislative process. The other avenues are little better than legalized theft.

From the government’s perspective, there are four main ways to dispose of debt: taxation, inflation, repudiation, and spending limitation. The last of these is best because it gives people more freedom. Less government equals more freedom.

In the nineteenth century and first half of the twentieth, U.S. government debt was kept to a manageable level, except in wartime, when of course it would spike. But then peace would return and it would subside. In the 1960s or ’70s, something changed. Debt began to rise without subsiding, to the point that the national debt has now reached its second-highest level in history (the highest was in 1946). Have we been doing anything in the past few decades even remotely as costly as simultaneously defeating Nazi Germany and Militarist Japan? Well, actually, yes, we have! We’ve been building a massive Entitlement State. The welfare programs created since the 1930s now constitute at least three-fifths of federal outlays, and they’re growing. The official debt has topped $18 trillion, an amount about the same size as our entire annual GDP, but we have something like another $100 trillion to $200 trillion in future unfunded liabilities we’ve not settled on a way to pay for. A bipartisan establishment has grown up to feed off of and perpetuate this Entitlement State, making spending a one-way ratchet. Government only grows. It never shrinks. And since the tea party movement rose up in 2009 to demand reasonable curbs on spending and debt, and an end to bailouts, politicians have responded by more or less shifting the borrowing power to the President and maintaining business as usual.

Before 1917, there was no debt ceiling. Each new bill authorizing new spending would be offset by way of tax hikes, spending cuts, or a limited grant of borrowing authority. Congress “paid as it went.” That was the right practice. We have gotten so far away from it, we barely remember it.

Today, electing the right people isn’t sufficient to meet the new and daunting challenge of ever-growing debt. To meet that challenge, we need permanent structural change. To save the republic from bankruptcy and decline, we must amend our Constitution to make it impossible for politicians not to produce routinely balanced budgets and regular, modest surpluses.

The amendment needn’t be long or complicated. It must instill real discipline while retaining flexibility to deal with true emergencies like defensive wars. What kind of change would ensure politicians prefer balanced budgets over chronic debt? I would require Uncle Sam to obtain a responsible co-signer on any new debt. That co-signer is ideally the states. (It could, alternatively, be a supermajority of both houses of Congress. But giving the job to the states is always going to be a stronger safeguard than trusting the foxes to guard the henhouse.) I love the eloquently drafted National Debt Relief Amendment, which reads: “An increase in the federal debt requires approval from a majority of the legislatures of the separate States.” That’s it. Eighteen self-enforcing, hard-to-misconstrue words. Unfortunately, this amendment is probably too elegant. Politicians are rascals, and will look for ways to get around the law. We’d also need a specific enforcement mechanism that effectively deters politicians from violating the amendment. And ideally we’d also require that each discrete instance of borrowing authority be limited in terms of time, amount, and permissible use.

An alternative approach that I find amusing, and yet not at all unserious, is the one suggested by Warren Buffett: “Whenever the deficit exceeds three percent of GDP, every currently sitting Member of Congress becomes ineligible for reelection.” That’d solve our debt problem. (I call this the Do Your Job Amendment, and I’ve taken a crack at drafting it myself.)

Happily, a grassroots movement is gathering to call an Article V convention to add an effective debt-control amendment to the Constitution. The best proposal for doing so, that I’ve seen, would use an interstate compact to make all the critical decisions up front. The Compact for America, as it’s called, is the first Article V proposal that can both get around a runaway Congress and allay all concerns about a runaway convention. To learn more, visit the Compact for America. (Full disclosure: I serve on this group’s board of advisors.)


Constitutional Amendments

This plank requires a constitutional amendment placing a firm, enforceable cap on federal borrowing, with reasonable mechanisms to permit necessary borrowing in an emergency. The best versions of such an amendment that I’ve seen are the National Debt Relief Amendment, the Do Your Job Amendment, and the Compact for America Balanced Budget Amendment. Any such amendment should come from the states, rather than Congress.


Benefits

Will produce balanced federal budgets and an end to chronic federal debt.

Will tend to increase the voice and power of the states in federal fiscal policy.


Summary

Plank 6     Contents     Plank 8

Revised: August 2, 2015.

First published: June 21, 2013.

Author: Dean Clancy.

Add a Comment