A Plan to Renew the Promise of American Life, Plank 7
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Plank 7. Limit debt
Specific Recommendations
7.1. Return to the pre-1917 congressional practice of fully financing each new spending bill within its own text through spending cuts and tax hikes (pay-as-you-go) and/or ad hoc debt authorizations (borrow-as-you-go). This will reduce overall spending. It will also eliminate the need for legislative brinkmanship over whether to raise the statutory debt ceiling.
7.2. Establish, by constitutional amendment, an enforceable cap on total federal debt, defined in terms of a specific number of dollars. The amendment or amendments 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 in states representing a majority of the citizens of the United States, 3) enforce the cap with presidential sequesters and impoundments, 4) define the term ‘dollar’ explicitly, in an airtight way, so that the amendment cannot be evaded through redefinition (preferably just by reiterating the existing, implicit definition), and 5) punish any breach of the cap with strong, credible penalties for the federal officials responsible for the breach. A model for such an amendment is the Do Your Job Amendment.
7.3. If Congress refuses to originate the debt limitation amendment, originate it via the states through an Article V convention of states.
Comments
On our present course, our national debt will become unmanageable and trigger an economic crisis of historic proportions. This threat exists because we have forgotten fiscal common sense. We have abandoned the time-tested discipline of pay-as-you-go. If we fail to take action, our republic will suffer great harm.
The five rules of fiscal common sense are limit spending, tax lightly, borrow the minimum, maintain a surplus, and 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.
Excessive debt needs to become politically unthinkable. And that, I think, can only happen with a well-crafted constitutional amendment. We must, as it were, bind men down with the chains of the constitution, and specifically with automatic penalties that are both effective and unavoidable and yet with enough flexibility to meet a true emergency. Threading the needle is not easy, but is possible.
In 1798 Jefferson opined in a letter to a friend that ‘I wish it were possible to obtain a single amendment to our constitution . . . taking from the federal government the power of borrowing.’ As president, he tried to keep public debts small and to pay them down swiftly. But he did not try to eliminate the borrowing power altogether. And sensibly so. We all need to borrow from time to time. Even Congress does — for example, to buy the Louisiana Purchase while it’s on sale.
As an economic matter, running an occasional deficit is not the end of the world, nor is maintaining a modest debt, even for a long time. The danger comes when the debt becomes so big it is no longer manageable. But what does it means for a debt to be manageable? It means the debt burden, both principal and interest, must be growing less fast than the debtor’s ability to repay it. That’s all. Or to put the same idea another way, the debt must be continuously shrinking as a share of one’s income. Pay your debts, increase your income — either way works. But when we do neither, bad things happen.
There are three ways to dispose of a debt: repay, renegotiate, or repudiate. The most likely outcome on our current trajectory is repudiation, via some combination of price inflation and economic deflation (meaning a recession or economic downturn). A major economic recession with price deflation — which is what happened in the early 1930s — would likely culminate in dollar devaluation, à la ’34. (Free advice: Keep a little stash of gold hidden somewhere!) After the crisis has played itself out, we will either go back to fiscal common sense or devolve into Argentina.
So how can we make our national debt manageable? Raising taxes significantly would only make things harder, since tax hikes burden economic output. Instead, we have to limit spending. (Restoring honest money would help.)
Before 1917, Congress paid for each new spending bill as it went. Pay-as-you-go. Sometimes it cut spending elsewhere to cover the bill’s cost. Sometimes it raised taxes. Sometimes it authorized the Treasury to borrow in a limited, controlled fashion. Borrow-as-you-go. And sometimes, it did a combination these things.
Since politicians dislike tax hikes and spending cuts more than they dislike borrowing, all other things being equal, borrowing will tend to win out. Especially if Congress has a printing press. And sure enough, just about the time it gave itself a printing press, in the form of the Fed, it started borrowing more heavily.
During the First World War, Congress adopted a convenient alternative to pay-as-you-go and borrow-as-you-go. It established an overall debt ceiling and left the details of any necessary debt issuance to the Treasury Secretary. That way, Congress only had to vote on raising or lowering the ceiling from time to time.
That scheme worked well enough for a few decades. Debt ceiling votes came to be routine. But they were always a bit politically risky for members of Congress. And they became partisan. Usually, they had to be carried by the majority party alone.
By the early twenty-first century, partisan politics had become so polarized that debt-ceiling votes became highly charged. Brinkmanship reigned. Impasse dramas occurred that began to scare voters. Commentators began warning of accidentally stumbling over a ‘debt cliff’ and causing a flight from the dollar and, because of the dollar’s role as the world’s reserve currency, triggering a global economic meltdown.
Scholars began looking for ways to avoid such a fate, and two reform camps emerged. While both agree the existing debt-ceiling mechanism should be retired, they differ starkly about what to replace it with.
Progressives want to replace it with a standing grant of authority to the Treasury to borrow as much as needed, whenever needed. In other words, make borrowing the standard way of paying for everything and just trust Congress to reduce spending voluntarily when necessary to dampen the price inflation that will inevitably follow all that borrowing and associated money printing.
Conservatives and decentralists like yours truly want Congress to go in the opposite direction — back to the old pay-as-you-go and borrow-as-you-go system that worked just fine before 1917.
Realistically, Congress will refuse to take either path until the public is fed up with fiscal irresponsibility. And sadly, that will almost certainly not happen until the economy tumbles down the hill.
Now, even if we get lucky and Congress wakes up and preemptively returns to pay-as-you go before it’s too late, nothing can prevent it from backsliding in the future. Except for a constitutional amendment.
‘Electing the right people’ won’t work until we have a permanent structural change that alters politicians’ incentives. They must be made to regard it as political suicide not to produce regular, modest surpluses. And that, again, can only be done with a constitutional amendment. I wish it were otherwise.
In the remainder of this discussion, I will try to answer two questions: What should the amendment say? and Who should propose it?
What should the amendment say? Well, to begin with, it should not be a traditional balanced budget amendment. I must have read a few dozen of these, and they are all fatally flawed. Either they lack an enforcement mechanism, or they contain loopholes the size of Canada. All would be ignored or evaded — and in a few cases, they would invite the courts to impose tax hikes, seriously weakening the separation of powers. No, thanks!
Instead of capping spending, we have to cap debt. We have to replace today’s statutory debt ceiling with a constitutional debt ceiling. And unlike that ceiling, it must be enforceable. (To be clear, I think we do need to freeze peacetime spending, but we should not do it via constitutional amendment.)
More specifically, it must to do all of the following, namely:
- Permit no federal spending beyond current receipts, except for amounts borrowed in strict conformity with the amendment.
- Provide that authorization for any borrowing above the debt cap requires the approval of a majority of the state legislatures in states representing a majority of the citizens of the United States.
- Enforce the debt ceiling with presidential sequesters and impoundments.
- Punish any breach of the ceiling with credible penalties for the federal officials responsible for the breach.
That last feature is critical. Without it, the amendment won’t work. My own preference, in the event of a breach, would be to make all incumbents ineligible for reelection after the end of their current term. This ‘time-out’ from holding federal office could be temporary, say, eight years. For added incentive, we could make someone personally financially liable for a breach, say, the president or the treasury secretary. We should be creative.
Who should propose the amendment? Not Congress! Congress won’t curb its own powers voluntarily. It will either refuse to propose the necessary amendment or it will make sure the amendment contains fatal loopholes. So that leaves us with the States.
Article V of the Constitution includes a clause allowing two-thirds of the states to convoke a convention of the states for proposing amendments. No such convention has occurred since the Constitution was adopted. But the option is there for a reason. The Founders gave us an alternative path precisely to circumvent a recalcitrant Congress in a serious crisis. Surely even a blind man can see we are in one.
Constitutional Amendments
This plank requires a constitutional amendment placing an automatic, effective, and unavoidable cap on federal borrowing, with safeguards to allow necessary borrowing in a true emergency. Good models to draw on include the National Debt Relief Amendment and the Do Your Job Amendment.
Benefits
Produces balanced federal budgets and an end to chronic federal debt.
Increases the voice of the states in federal fiscal policy.
Revised: March 27, 2020.
First published: June 21, 2013.
Author: Dean Clancy.
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