It’s time for a constitutional debt-limitation amendment.
We can’t grow our way out of this mess. The latest government numbers confirm America is sailing straight into a major fiscal storm — perhaps sooner than many expect. The question is not whether, but when. Even sustained economic growth can’t steer us clear. But we can weather the storm, with sensible fiscal restraints.
According to the latest projections of the Congressional Budget Office (CBO), the national debt is now approaching its all-time high. It has reached $21 trillion, on its way to $29 trillion in 2028. Total federal debt has surpassed 100 percent of GDP. The warning light is flashing.
Uncle Sam is now borrowing just to pay the interest on his past borrowing. Net interest payments consume 7.5 percent of federal spending today, and by 2028 will consume twice that share. By 2023 gross federal interest costs are expected to equal 70 percent of new debt.
We’re sinking in a debt-trap with no turnaround plan in sight.
According to the most recent trustees report, Social Security will run out of money in 2034, just 16 years from now. Seniors will suffer a permanent, 21-percent reduction in their monthly benefits, assuming Congress fails to act. Realistically, Congress will act and Social Security will be saved, but one way or another, we will all get stuck with the bill.
The Trump tax cuts appear to have goosed the economy, but reversing (most of) them and spending the money on infrastructure and green energy, as congressional Democrats propose, would obviously not close the deficit gap — and probably would slow the recovery.
On our current path, a debt-induced financial collapse is in our future and may be closer than we think. That’s why the U.S. Debt Default Clock’s minute hand now stands at ‘five minutes to midnight.’
To be clear, we’re not in danger of a catastrophic bond default, the kind that can trigger a global economic meltdown. Uncle Sam has sufficient tax revenue to pay every penny of principal and interest on its outstanding Treasury debt, indefinitely.
But there are other kinds of ‘default’: inflation, tax hikes, spending cuts. Indeed, that sort of ‘default’ is now inevitable.
While spending will grow over the next decade by a cumulative 12 percent, tax receipts will grow by just 11 percent. The deficit will widen from 3.8 percent to 4.8 percent of GDP. And this gap gets bigger the farther one looks.
To close this yawning gap in ten years without tax hikes or spending cuts, the economy would need to grow by about 5 percent a year on average. CBO predicts growth of just 1.6 percent a year.
On our current path, no plausible amount of economic growth can by itself transform deficits into surpluses. Growth is necessary, but not sufficient. Spending restraint is indispensable.
Why does Uncle Sam live continuously beyond his means? Because he can. He can raise his own credit-card limit. And he can escape some of his debt burden by repaying his creditors in debased currency, via Federal Reserve-generated inflation.
Spending reduction is the least-worst way to minimize the damage. And yet we can safely predict Congress will never reduce spending while it has the power to raise its own credit-card limit. It’s a Catch-22.
Realistically, our only hope is to change the rules. We need to curb Congress’s borrowing power — give it some adult supervision. We need a mandatory co-signer on any increase in the total level of federal debt, which will require a constitutional amendment.
In our constitutional system, the logical candidate for the co-signer job is the states.
Obviously, Congress will be reluctant to give up any of its existing power (see how it has refused to pass a balanced budget amendment). So the states would have to unite to force the amendment through.
It takes 38 states to ratify a constitutional amendment. That means we would need 38 states to agree on, and formally demand, a specific, pre-drafted text. Happily, five states — Georgia, Alaska, Arizona, North Dakota, and Mississippi — have the ball rolling already. They’ve provisionally approved a pre-drafted amendment that would require the consent of a majority of the state legislatures to raise the federal debt ceiling. The amendment would be self-enforcing via automatic across-the-board spending reductions, and it also contains a provision requiring three-fifths congressional majorities to raise taxes.
The five states have entered into a formal interstate agreement, the Compact for America, to help them reach the magic number of 38 states.
A long shot? Sure. But what’s the alternative? We can’t grow our way out of this mess. We also need fiscal restraint. And the state-led Compact for America is the most serious fiscal-restraint proposal out there.
Dean Clancy, a former senior Republican budget official in Congress and the White House, is a volunteer advisor to the Compact for America Educational Foundation and a member of the Debt Default Clock Review Committee. Follow him on Twitter @DeanClancy. The opinions expressed in this article are his own.