7. Limit Debt

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 U.S. population, 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. Good models for such an amendment include the Do Your Job Amendment and the Compact for America Balanced Budget Amendment.

7.3. If Congress refuses to originate the debt limitation amendment, originate it via the states through an Article V convention of states. In order to lay to rest all concerns about a runaway convention, coordinate the state amendment drive by means of a legally binding interstate compact that includes within its terms the full text of the proposed constitutional amendment and all of the rules, appointment procedures, delegate instructions, etc., necessary for a brief plebiscitary convention, whose sole purpose is to vote up or down on that amendment without change. The pioneering example of how to do this is the Interstate Compact for a Balanced Federal Budget.


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 be seriously weakened.

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.

To restore fiscal common sense, we must change incentives. We must make excessive debt politically unthinkable. And that can only be done with a well-crafted constitutional amendment. We must 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 this needle is not easy, but it is doable.

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.

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 it.

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 can 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 inflation and recession. A major 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 also help, of course.)

Before 1917, Congress paid for each new spending bill as it went. Sometimes it cut spending elsewhere to cover the bill’s cost. Sometimes it raised taxes. And sometimes it authorized the Treasury to borrow in a limited, controlled fashion. And sometimes, it did some combination the above.

Since politicians dislike tax hikes and spending cuts more than they dislike borrowing, all other things being equal, borrowing will tend to win out over time. 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 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 also became charged. Brinkmanship appeared. 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 collapse.

Scholars began looking for ways to avoid such a fate, and two reform camps emerged. While both agreed the existing debt-ceiling mechanism should be retired, they differed 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 all that borrowing (and associated money-printing) will inevitably generate.

Conservatives and decentralists like yours truly want Congress to go in the exact opposite direction — back to the old pay-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 realistically, that will almost certainly not happen until the economy sails over a cliff. Alas!

And 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.

Wake up, America! ‘Electing the right people’ has not worked. It will never work while incentives remain wrong. What we need is permanent structural change that alters incentives so our elected representatives regard it as political suicide not to produce regular, modest surpluses. And that 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, Congress or the states?

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 those, 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 clearly invite the courts to impose tax hikes, seriously weakening the separation of powers. No, thanks!

Instead of capping spending, we must cap debt. We have to replace today’s statutory debt ceiling with a constitutional debt ceiling. And unlike that ceiling, it must be enforceable. 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 U.S. population.
  • 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.

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 only one option: 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 yet occurred. But hey, there’s a first time for everything. And the Founders gave us this alternative path precisely to circumvent a recalcitrant Congress in a serious crisis.

And 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 for such an amendment include the National Debt Relief Amendment, the Do Your Job Amendment, and the Compact for America Balanced Budget Amendment.


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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