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Archive for the ‘National Debt Ceiling’ Category

WHAT A REAL SWORD OF DAMOCLES WOULD LOOK LIKE.

November 23rd, 2011 by ahawks

Why did the deficit reduction super-committee fail?

For the same reason that the “Byrd Amendments” mandating a balanced budget failed in 1978, 1980, and 1982.

For the same reason that the Gramm-Rudman-Hollings law  and its sequestration procedures failed in 1985, and 1987.

For the same reason that the various “Budget Enforcement Acts” with their deficit reduction targets failed in 1990, 1993, and 1997.

For the same reason that the perennial PAYGO rules have always failed.

For the same reason that the Public Debt Limit has always failed.

The reason: none of these statutory measures have ever imposed (or could impose) an enforceable penalty of sufficient severity to compel Congress to balance the budget.

The media metaphor for such a penalty is the “Sword of Damocles,” which for the super-committee was supposed to be the automatic sequestration cuts that were part of last summer’s debt ceiling deal (Public Law 112-25).  To the surprise of no one, these sequestration cuts are either a charade if Congress rescinds them before they take effect on January 2, 2013 or a joke even if President Obama follows through on his pledge to veto any rescission bills.

Still, the Sword of Damocles metaphor is apt when you consider what Damocles did after seeing the sword hanging above.   According to legend, Damocles (think Congress) was a pandering courtier in the court of Dionysius II of Syracuse, who praised Dionysius for his great wealth and good fortune.  Dionysius thereupon offered the throne to Damocles, who gladly accepted only to discover the sword pointed directly overhead and hanging by a single hair of horse tail.  Damocles quickly decided that Dionysius was not so fortunate after all and hopped off the throne.

As told by Cicero, the moral is that no one can be happy living in constant fear, which Dionysius took to be the lot of any great leader.  Congress no doubt concurs since it hops off the throne any time the sword (think actual budget cuts) is about to fall.  For Dionysius, however, the fear was constant and could only be escaped by abdicating the throne, which he refused to do, just as Congress refuses to restrain its spending, much less abdicate its power of the purse.  Congress though does not need to relinquish its spending power because the threat posed by the statutory “swords” listed above can always be removed by simply passing an overriding statute.

The only way Congress can be forced to live in constant fear of losing its spending power is by constitutional amendment, but any such amendment must contain a penalty – a true Sword of Damocles – that is genuinely feared.  This is why the Balanced Budget Amendment that just failed in the House deserved to fail: it contained no penalty that would actually restrain the fiscal profligacy of Congress.

Such penalties do exist and here are three possibilities: (1) a Balanced Budget Veto Amendment that gives item veto power to the President whenever a fiscal year ends with a deficit; (2) a Balanced Budget Rotation Amendment that prohibits Members of Congress from running for re-election after five straight years of deficits; and (3) a Balanced Budget Pay-Cut Amendment that reduces Congressional pay by the same percentage of federal borrowing in the preceding fiscal year.

A Balanced Budget Veto is the most apt penalty (since it would also hold the President accountable for failing to use the item veto), and it would probably be sufficient as a stand-alone penalty given Congress’s severe jealousy over the power of the purse.  Of course you will never see Congress adopt any of these measures precisely because Congress will never impose a genuine penalty on itself.

Under Article V of the Constitution, however, the states can impose this type of Sword of Damocles penalty on their own.  With the collapse of the super-committee (and a budget deal unlikely to occur in a presidential election year), the door is now wide open for the states to succeed where our national leaders have failed.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

This is the last in a series of posts about the recent debt ceiling debate.  Although the national debt limit is a statute and not a constitutional requirement, I have tried to show in earlier posts that enforcement of any future Balanced Budget Amendment (BBA) will play out just as the debt ceiling did.  Enforcement will fall short in both cases because of irresistible pressures to avoid what again will be characterized as Financial Armageddon.

This is true not only because the BBA has its own debt ceiling provision (requiring a 3/5ths vote rather than a simple majority), but also because its waiver provisions have the same “take it or leave it” quality as the debt ceiling statute.  In the end, Congress will be forced to waive any balanced budget, spending limitation, or debt ceiling requirements in a BBA, or watch as the government shuts down or defaults on its debts and other payment obligations.

In either case, if there is no payment priority plan in place, uncertainty in the economy and financial markets will continue to prevail, and Congress will again back down rather than face the consequences of its own fiscal irresponsibility.  President Kennedy was fond of saying that “to govern is to choose,” but this is precisely what the President and Congress refuse to do every time they raise the debt ceiling and talk of mythical spending cuts in the “out years.”

If Tea Partiers want to prevail in the next debt ceiling battle, then they need to force a debate over what a detailed and comprehensive payment priority plan would look like.  Today, no such plan apparently exists within the federal government, although most departments and agencies have their own contingency plans in the event of temporary funding lapses.

The President’s annual budget proposal is thought to present his spending priorities, but in fact it only does so in the limited sense of which programs should get funding and how much.  These budgets never contain priorities as to who should get paid if available funds are insufficient to pay everyone.

Congress, however, could change this process by establishing priorities for spending required by the Constitution and statutory entitlement spending, while requiring the President to assign a priority rating to every discretionary budget program or line item.  The discretionary priority ratings would not be binding, but would allow for periodic revisions to reflect actual appropriations by Congress over the course of the legislative session or to accommodate genuine emergency spending that was not anticipated when the President’s budget was first released.

According to a recent Congressional Research Service report (Reaching the Debt Ceiling, p. 9 n.30 ), the Office of Management and Budget has prepared a list of essential functions that must be performed during government shutdowns.  This list could serve as the foundation for a payment priority plan, but much more is needed to deal with a crisis situation in which money can no longer be borrowed to finance our annual deficit, which the Congressional Budget Office now estimates is 40% of the entire federal budget.

Think of it this way: every spending item in the federal budget falls either within the 60% that can be paid with current Treasury cash flow, or the 40% that can only be funded with borrowed monies.  Let’s call the former “Priority Spending” and the latter “Non-Priority Spending.”  The most basic question then for any payment priority plan is whether a particular budget item should be classified as Priority Spending or Non-Priority Spending.

Of course it is more complicated than this since cash flow fluctuates daily, as does the amount of payment obligations that become due each day.  Thus, in practice there may not be enough cash flow on a given day to cover the Treasury’s payment obligations even if the only obligations for that day were among the Priority Spending items.  This could be addressed by making such partial payments as immediate cash flow allowed, while paying the balance at a later time as additional revenue was received.  Regardless, Non-Priority Spending would always be at the end of the line until higher revenues were generated to pay all Priority Spending in full, thereby decreasing the percentage of Non-Priority Spending from 40% to 39% to 38%, etc.

A more complex, but perhaps fairer, approach would be to adopt a classification system with numerous categories, instead of just two (Priority v. Non-Priority).   You could have, say, 100 categories, with each category representing the percentage of the item to be paid from incoming cash flows.  Thus, items in the “100” category would receive a 100% payment when due, while items in the “75” or “50” or “25” or “0” categories would only receive a 75%, 50%, 25%, or zero payment, respectively. In this way, more budget items would benefit from at least a partial payment with far fewer spending items in the “Non-Priority” or zero category.

For discussion purposes, however, let’s stick with the simpler case of establishing a payment plan that only distinguished between spending in the 60% Priority Spending v. the 40% Non-Priority Spending.  Now the important question becomes what criteria should be used to decide what budget items go into which category.  Regrettably, there was virtually no discussion of this issue during the recent debt ceiling debate.

As far as I know, the only detailed payment priority analysis presented during this debate was a report issued by the D.C.-based Bipartisan Policy Center (BPC) in July 2011 titled Debt Limit Analysis, although a number of media organizations developed “Do It Yourself” Internet tools for deciding who gets paid, found here, here, and here.    The BPC plan, however, does not make priority recommendations, but merely shows what would not get paid if certain programs were fully funded.  Thus, if you prioritize and pay all Treasury securities, Social Security, Medicare/Medicaid, defense contractors, and unemployment insurance benefits, then according to the BPC there would be no cash flow to pay such items as military active duty pay, veterans services, federal salaries and benefits, and a slew of programs at the Education, Energy, HHS, HUD, Labor, and Justice Departments. 

Knowing the potential trade-offs is certainly helpful, but establishing criteria for making these trade-offs is what any payment priority plan must ultimately address.  Should they be economic, political, or moral?  A business or individual would probably start with economic criteria, asking which creditor is needed to keep the business operating or the mortgage paid?  Under this standard, Treasury bondholders and government contractors would probably come first.  From a political standpoint, Social Security and Medicare would doubtless be at the top, while from a  moral perspective those with the greatest need (e.g. Medicaid recipients) or who have made the greatest sacrifices (e.g. active military) would have the strongest claim to priority.

From a legal standpoint, however, the answer would be that payments required by the Constitution must be made first, as explained here by Professor Rob Natelson (“Can the President Raise the Debt Ceiling Unilaterally?”, beginning at 10:30 minutes).  This is strongest reason why payments on the national debt (14th Amendment, Section 1) and payments to ensure national defense (Article IV, Section 4) have the highest priority, along with constitutional duties to keep essential aspects of the federal government operating.    

Regardless of the criteria followed, it is easy to understand why neither the President nor Congress would ever want to offend millions of voters by picking winners and losers in such a budget lottery.  But this is precisely why conservative and libertarian think tanks should begin presenting their own priority plans, and why Tea Partiers should press for such a plan if they want a meaningful debate over the debt ceiling or any future BBA.  It would not only spur debate over true budget priorities, but also expose the weaknesses of the class warfare arguments that we are hearing today.

When President Obama calls for increasing taxes on the rich, the first question to be asked is whether these new taxes are intended to pay for a program that should be classified as 60% Priority Spending or as 40% Non-Priority Spending.  Surely President Obama would not concede that a program designed to help the poor such as Medicaid is in the Non-Priority Group.  But if Medicaid is considered Priority Spending, then no new taxes are needed to fund Medicaid because, by definition, the Treasury already has the cash flow to pay for programs in the 60% Priority Spending group!

Inevitably it turns out that new taxes are being demanded for something that is properly placed in the Non-Priority Spending category, which is a much harder argument for supporters of higher taxes to make.  Why, for example, should the wealthy be asked to provide funding for National Public Radio surely a Non-Priority Spending item?  This is precisely the point that former chairman and CEO of American Express Harvey Golub was making in his recent Wall Street Journal op-ed rebutting Warren Buffett’s call for higher taxes on the rich.

This is the debate we need if the debt ceiling or a BBA is to become real, and Tea Partiers should try and force the issue over the next 14 months until the 2012 election.  Senator Orrin Hatch (R-UT) has already called on Treasury Secretary Geithner to furnish a payment priority plan,  and Tea Partiers should be supporting this effort, while pressuring House and Senate Republican leaders to coalesce around a consensus payment priority bill.  Each Republican presidential candidate should then be asked to pledge their support for such bill or to present their own plans if elected.

Just imagine the pressure on Congress to cut spending during the next debt ceiling debate if the next President not only refused to ask for another debt ceiling raise, but actually promised to veto any increase passed by Congress.  It would be irresponsible to do so without first having presented a priority payment plan, but not if such a plan were disclosed months ahead of time, so that the financial markets have plenty of time to adjust and were assured that payments on the public debt would be paid first and in full.   

 Copyright © 2011 Anthony W. Hawks. All rights reserved.

The debt ceiling is only a “ceiling” until Congress raises it.  The Balanced Budget Amendment (BBA) only “requires” a balanced budget until Congress waives it.  The elephant in the room is the fear of what would happen if Congress actually refused to raise the debt ceiling or waive the hypothetical BBA mandate.  If supporters of a balanced federal budget want to prevent another debt ceiling increase and/or keep any future BBA from being routinely waived, then they must get serious about the elephant in the room.

Let’s begin by remembering that Tea Partiers were not the only ones to resort to brinksmanship in the recent debt ceiling debate.  The Obama Administration did so by insisting on an unwritten rule that government payments must be made in chronological order as they are presented for payment.  Under such a rule, available funds would be used for payments other than the public debt, thereby threatening the unprecedented default that so many believe will be economically catastrophic.

Of course, President Obama must also have realized that any official policy recognizing the priority of public debt payments would have made it easier for opponents to reject another raise in the debt ceiling.  This is doubtless why Deputy Treasury Secretary Neal Wolin issued a warning early in the debt ceiling debate (January 21, 2011) that any “legislation to ‘prioritize’ payments on the national debt above other legal obligations” was simply “unworkable.”

This refusal to prioritize debt payments prompted an immediate Congressional response in the form of two Republican bills (H.R. 421 and S. 163) that would have required public debt obligations to be paid first.  As the debt ceiling debate played out, another half-dozen or so bills were introduced (H.R. 568, H.R. 728, H.R. 1908, H.R. 2402, H.R. 2496, H.R. 2605, S. 259, and S. 1365) requiring both that public debt payments be made and setting a limited number of other payment priorities.  As one would expect, the priorities mentioned most often are the public debt, Social Security, the Armed Forces, and such “vital national security priorities” as would be certified by the President.  These bills have adopted a variety of approaches.  The two original bills, H.R. 421 and S. 163,  introduced by Rep. Tom McClintock (R-CA) and Senator Pat Toomey (R-PA), were clearly designed to take the possibility of default off the table.  The other bills are designed to allay political concerns from key constituencies, but at least one House proposal, H.R. 1908, introduced by Rep. Todd Akin (R-MO), takes a broader view.

The Akin bill not only sets priorities at the top of the food chain (the public debt, Social Security, military pay, etc.), but also identifies priorities at or near the bottom by specifying that certain departments and agencies would only receive 20% (!) of their authorized funding if the debt ceiling were reached.  The 20% figure appears to be arbitrary, but presumably is intended to cover only what might be considered the “essential” operations of these departments and agencies.  For a comprehensive set of spending priorities, the Akin bill would further require the President to explain how all other spending programs would be prioritized, as well as how the Government would continue to operate not only if the debt ceiling is reached, but also whenever a partial government shutdown occurs because annual appropriations have not been passed.

The passage of such a bill would clarify, if not fully resolve, the legal authority for establishing a payment priority plan, but in the meantime there are no recognized legal standards for doing so.  The lack of a federal court opinion is not surprising since there has never been a substantive default on a government obligation that created the injury needed for standing to file a lawsuit.  What is surprising is the lack of an official executive branch position on the issue.

The unofficial Treasury position is a simple “payment when presented” or “first-in, first-out” rule, so that no discretion can be exercised as to who gets paid first.  If a pork barrel project is presented for payment before the payday of soldiers in a war zone, then so be it.  Of course, it is hard to believe that the President would actually follow such a rigid rule in practice, but this has been the Treasury position since at least September 10, 1985, when a Reagan Administration official refused in a Senate Finance subcommittee hearing to consider asking the Attorney General for a formal ruling that the President could set spending priorities if the debt ceiling were not raised.

The Senate Finance Committee initially went along with this assessment, but then requested a legal opinion from General Accountability Office (GAO), which concluded in an October 9, 1985 letter to then Chairman Bob Packwood (R-OR) that the Treasury Department was “free to liquidate obligations in any order it finds will best serve the interests of the United States.”  Neither of these rulings is definitive, but rather two sides of the same coin: Treasury is saying that there is no legal authority to elevate one validly enacted appropriation over another, while GAO is saying that there is no legal prohibition against doing so.  Since there is no statutory law favoring either position, both positions are justified.

In the law, however, ties are typically broken by asking who has the burden of persuasion and here the burden is more justifiably placed on Congress, which after all is creating the problem by passing conflicting appropriations with insufficient funding.  Moreover, Congress has the constitutional power to set its own payment priorities, either as an express power under the Appropriations Clause (Article I, Section 9, Clause 7) or an incidental power under the Necessary and Proper Clause.

If this Congressional power is not exercised, however, then only the President can choose the order of payment if funds are unavailable to make all payments as they come due.  Such a presidential power would be incidental to the general executive power expressly granted in Article II, Section 1, and further implied by the President’s duty in Article II, Section 3 to “take Care that the Laws be faithfully executed,” a duty that parallels the GAO’s conclusion that payments be made in whatever order “will best serve the interests of the United States.”

A tie in this instance should therefore go to the President, and the GAO position should prevail absent any future statute restricting the President’s discretion in this regard.  Assuming then that Congress (or the President when Congress has failed to act) has the power and authority to reject a “first-in, first-out rule” and set payment priorities using other criteria, there remains the important question of how payment priorities should be established and by what criteria.  This issue will be discussed in the next and final post of this series.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

“… we can no longer let partisan brinksmanship get in our way ….”

          –        President Obama’s Weekly Address (August 13, 2011)

The greatest strength of Tea Partiers during the debt ceiling debate was its unity in the brinksmanship needed to close the final deal.  This brinkmanship, however, will soon become a liability if it is only leverage that the Tea Party can exert.  Since it is the public that feels endangered by the threat of default or a government shutdown, resorting to brinksmanship on these occasions will inevitably alienate voters and undermine the Tea Party message of smaller government and fiscal responsibility.

This does not mean that such brinkmanship is the same thing as “extortion” or “hostage-taking” or any of the other hyperbolic epithets hurdled at the Tea Party when it became apparent that they meant what they were saying.  As Professor Eugene Volokh has pointed out on the Volokh Conspiracy legal blog, a genuine extortion or hostage-taking victim simply wants to be left alone.  The analogy loses all validity and persuasiveness when it is the so-called victim that is making demands, or as Professor Volokh put it: President Obama and his supporters “wanted the conservative legislators to cast their votes to authorize a debt limit increase. They wanted taxpayers to be on the hook for repaying an increased national debt. They wanted people’s cooperation, and were then complaining about the conditions that the people imposed for such cooperation.”

The proper analogy is not to “extortion” or “hostage-taking,” but to the “holdout” problem in land condemnation cases.  Whenever private land is needed for a truly public project, the government must have the power of eminent domain to prevent holdouts from exploiting this need to extract unjust compensation.  President Obama needed the cooperation of Tea Party legislators to raise the debt ceiling, but obviously felt that they were demanding too much in return, particular their refusal to accept a tax increase.

Viewed from the “holdout” perspective, what House Republicans did in the debt ceiling vote was no different than what legislators of both parties have always done in a close vote: they hold out for something greater than what they would have gotten by agreeing earlier in the process.  Remember the “Cornhusker Kickback” during the ObamaCare debate, when Senator Ben Nelson demanded a Medicaid carve-out for Nebraska? Or when Senator Bernie Sanders took credit for $10 billion in new community health center funding? Or when the President had to promise Senator Mary Landrieu an extra $300 million in Medicaid funding for Louisiana to win her ObamaCare vote?

The only substantive difference between these hold-out senators and the Tea Party legislators – and it is a crucial difference indeed – is that the Tea Partiers were principled enough to resist the type of “sweetheart deals” that got ObamaCare passed.  The vitriol against the Tea Party only came out when President Obama and his supporters on Capitol Hill and in the media realized that (1) no “sweetheart deals” were available and (2) there was no equivalent power of eminent domain to force a compliant vote to raise the debt ceiling. 

Lacking the power to force a deal, President Obama had to meet the “no tax increase” demand because he could not be certain how close to the default brink the Tea Party legislators were willing to go.  This was reminiscent of President Reagan’s success on Inauguration Day 1981 in making Iran believe that he was unstable and angry and ready to attack if the American hostages were not released.  President Reagan also recognized the limits of this strategy, however, and never repeated it.

Similarly, the public at large will not endure brinksmanship every time the debt ceiling must be raised or the new fiscal year starts without the passage of appropriations bills.  The public knows that the harm from an actual default or a prolonged government shutdown will fall on them rather than the political class in Washington.  Still we did learn a valuable lesson from the success of the Tea Party in facing down President Obama and the Democratic leadership in Congress.

What made brinksmanship over the debt ceiling an effective strategy this last time was fear of the unknown.  Since default by the Treasury is an unprecedented event, no one can accurately predict the effect of an actual default on the economy and our financial markets.  (Note: A technical default occurred in 1979 when the Treasury made a few late payments, blaming technological glitches, but the noteholders were soon paid in full.)  If Tea Partiers want to make the national debt limit a real “ceiling,” they must do more than show their own lack of fear over a potential default.  They must eliminate, or at least greatly diminish, the public’s fear of the unknown if the debt ceiling is not raised.

This goal can only be accomplished by establishing a payment priority plan before the debt ceiling has to be raised again.  Indeed, the most remarkable aspect of the recent debt ceiling debate was the absence of commentary over this “elephant in the room”: Who get paid first if the Treasury has insufficient funds to cover all of its debts and other obligations?

It was not until very late in the process that we started seeing news reports like this July 27, 2011 New York Times article, “Treasury to Weigh Which Bills to Pay,” which informed us only that Treasury officials “would address the issue [of payment priorities] later this week unless it became clear that Congress would vote by Aug. 2 to let the government borrow more money.”

Since a debt ceiling deal was reached on August 2, we never found out what the Treasury’s payment priority plan actually was, but we did learn that the President was willing to engage in his own “partisan brinksmanship.”  This brinksmanship occurred when Administration officials “said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral, or economic considerations…,” meaning that Treasury supposedly had no choice but to make payments in chronological order as they came due.  We do not know if President Obama really meant this, but it certainly allowed him to scare the American public by suggesting that Social Security benefits might not be paid because they did not always come due first.

While the President’s warning might have been true for many popular programs, it was patently false for Social Security because securities in the Social Security Trust Fund could always be redeemed to pay for monthly retirement and disability checks.  President Obama was apparently unaware that the national debt limit applies to both debt held by the public and intra-governmental debt (such as the Trust Fund).  Thus, the Administration could have cashed in Trust Fund securities by selling more debt to the public without breaching the debt ceiling since the intra-governmental debt would have been reduced by an amount equal to the increase in public debt.  For more on this issue, see herehere, and here.

This still leaves the crucial question is whether, as a matter of law, the President does indeed have the authority to abandon the chronological “payment when due” rule and set payment priorities on his own discretion, at least in the absence of a payment priority statute.  Remarkably, not only is there no definitive legal opinion resolving this issue, but there does not appear to be a published article or detailed analysis even discussing the issue!  (If readers know of one, please bring it to my attention.)

Even if the President does have such legal discretion, there are no official guidelines or criteria by which this discretion would be exercised.  Hence the fear of uncertainty that transformed a routine increase in the debt ceiling into brinksmanship over the first genuine Treasury default in our nation’s history. 

If the Tea Party truly wants to use the debt ceiling statute (or a debt ceiling provision in any future Balanced Budget Amendment) for budget leverage in the future, then it has to take up this issue of a payment priority plan.   The law and politics of such a plan will be the focus of the next two posts in this series.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

The recent battle over raising the debt ceiling succeeded in bringing the dangers of our exploding national debt front and center, but it did not change the terms of the debate itself.  The media and political class still chatter about “spending cuts” when all they really mean are “reduced spending increases.”  Thus, for all the talk about setting a precedent requiring future ceiling increases to be matched by equal cuts in spending, the only real precedent is for matching future increases with promises of smaller spending increases, which may or may not be kept.  

Before we can have a real debate about the national debt, we need to talk with a common language.  Without a consensus on the meaning of key phrases like “spending cuts” and “tax increases” (not to be confused with “revenue increases”), and what makes a deficit reduction plan “balanced,” the parties will continue to talk past each other and mischaracterize their opponents’ position.

This is why the Republicans would have been right to reject President Obama’s proposal for a “balanced” deal with $800 million in higher taxes even if the President had not moved the goal posts by demanding $400 billion in higher taxes after Speaker Boehner was apparently willing to concede an $800 billion tax increase.  The problem here is one of inconsistent baselines. 

When the President offered his “balanced” approach, he was talking about tax increases over the current year revenue baseline.   At the same time, he was only willing to consider spending cuts from future year baselines.  Since current law ensures that future spending baselines are automatically higher, the so-called “spending cuts” would merely have reduced the size of these automatic increases.

A truly “balanced” approach would have proposed spending cuts from the current year baseline in exchange for revenue increases also from the current year baseline.  To use concrete numbers, according to the Congressional Budget Office, spending for fiscal year 2011 will reach about $3.70 trillion, while revenue for 2011 will only total $2.2 trillion, leaving an expected deficit of $1.5 trillion.  A “balanced” deficit reduction plan would have cut spending and raised revenue in similar amounts from the same current year baseline.  A “balanced” plan to actually balance the budget would have proposed cutting spending by $750 billion, while raising $750 billion in revenue to achieve a balanced 2012 budget of $2.95 trillion.

Of course it is not politically realistic to balance the budget in a single year, but unless you start from the same baseline you can never negotiate a realistic plan.  With the same baseline, you do not even need a “balanced” approach (as I have defined it) to eliminate deficit spending. You can do it without spending cuts or tax increases by keeping spending under the current $3.7 trillion baseline and letting revenues rise based on recent projections of economic growth.  Such an approach would balance the federal budget in six or seven years.  Still too little, but far better than anything the President or Republican leadership has proposed.

 Democrats argue that the no deal is possible as along as Republicans are bound to the “Taxpayer Protection Pledge” sponsored by Americans for Tax Reform (ATR).  If President Obama had been serious, however, about wanting Republicans to break this Tax Pledge, he would have offered spending cuts for higher tax revenues from the same baseline.  If these additional revenues had come from higher marginal rates, Republicans would still have been wise to reject the offer as economically destructive and more class warfare.  But if the President had offered spending cuts from the current year baseline of $3.7 trillion in exchange for additional revenues from a simplified code and expanded tax base, then Republicans would have been ill-advised to turn down such an offer, especially if the Bush tax cuts had also been made permanent.

Yes, such a deal would have violated the ATR pledge against “any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates,” but it would also have chipped away at what is or should be the primary goal of the Tax Pledge, namely, to shrink the size and scope of the Federal Government.  If Speaker Boehner ever wants to consider a future deal with increased tax revenues, then he should ask the ATR for a revision in the Tax Pledge, to wit:

            “I, _________________, pledge to the taxpayers of _____________, and to the American people that I will:

            “ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and

            “TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates or by cutting entitlement or discretionary spending from the current fiscal year baseline.”

Of course, there is about as much chance that President Obama will offer a truly “balanced” deal as there is that the media will stop referring to spending increases as “spending cuts.”  What Tea Party Republicans can do to change the debate, however, is to start thinking about how the debt ceiling should be used next time around without relying on the same type of economic brinksmanship that we saw in the last debate.

Such brinksmanship may have finally forced the Washington establishment to take the Tea Party seriously, but it achieved very little of substance, while releasing a torrent of calumny that portrayed the Tea Party as arrogant and insensitive to economic reality.  What Republicans should realize, however, is that the reason why Democrats could raise the specter of economic chaos during the debt ceiling standoff was not intransigence on the Republican side, but the absence of any payment priority plan if the debt ceiling were not raised.

While opponents of raising the debt ceiling were correct that the U.S. Treasury always had revenue sufficient to avoid default on the national debt itself, they were far too sanguine about the possible effects on the economy and our financial markets from uncertainty over what was not going to be paid – not to mention the likelihood of a virulent political reaction if government benefit checks had been delayed or cancelled.

Of course the absence of a payment priority plan was not the fault of the Tea Party.  The President has the primary responsibility to put one in place, both because he has the resources at Treasury and OMB to do so, and because no other political actor can set these priorities at a granular budget level.  While Congress set a few general priorities, it would be impractical to expect Congress to make priority decisions among thousands of budget items, particularly when political power is divided among the parties and dispersed throughout numerous committees. Indeed, the Senate has been unable to pass a budget resolution of any type in two years.

The absence of a payment priority plan should be the focus of political debate over any future increases of the debt ceiling.  What a payment priority plan might look like and how opponents of the future increases should press for one will be addressed in the next three posts.

 Copyright © 2011 Anthony W. Hawks. All rights reserved.

Rev. 08/14/11

By his own admission, the President’s primary objective in the recent debt ceiling debate was to ensure that it would not be repeated until after the 2012 elections.  By all appearances, he has achieved this goal.  No one can know for sure, of course, how long this deal will postpone the next debt ceiling debate – another Hurricane Katrina or 9/11 attack can always bust next year’s budget – but most press accounts believe that President Obama has pushed it off until 2013.

What we do know is that under the new Budget Control Act of 2011, the previous debt ceiling of $14.294 trillion was immediately raised by another $400 billion in exchange for $917 billion in promised reductions in future spending increases over the next 10 years (aka “spending cuts”).  As for more debt ceiling increases, the President can certify another $500 billion increase by December 31, 2011, and a further $1.2 trillion increase in 2012.

This last increase of $1.2 trillion can go as high as $1.5 trillion if (i) Congress approves up to $1.5 trillion in additional “spending cuts” through 2021 (in which case the debt ceiling increase and spending cut totals are supposed to match), or (ii) Congress passes a joint resolution with the words “balanced budget amendment” in its title, the precise terms of which have yet to be worked out – sort of like the baseball equivalent of a “player to be named later.”  All of these debt ceiling increases, except the immediate raise of $400 billion, can be disapproved by Congress, but only if a majority in both Houses affirmatively vote to disapprove.  Any tie goes to the President.

Regardless of how this budget deal is implemented, we can all be grateful for the constitutional debate it has sparked over the Public Debt Clause, particularly how it has driven opponents of the debt ceiling to seek legal justifications for having President Obama borrow money without Congressional authorization if the debt ceiling were not raised.  The President wisely refrained from doing so, which would have caused far more damage to our Constitutional system of checks and balances than would have resulted from a failure to pay every obligation that Congress has foisted on the American taxpayer.  Still, the mere fact that this argument gained traction in the media and legal academy underscores the premise of this blog (see Statement of Purpose), which is that the Constitution has been amended many times outside of Article V.

If the President had claimed the power to borrow money without Congressional approval and this action had been allowed to stand, then no less than five separate provisions of the Constitution would have been effectively amended, not just the Public Debt Clause that opponents of the debt ceiling want to rewrite:

1.   The Revenue Origination Clause (Article I, Section 7, Clause 1) would have been amended from “All Bills for raising Revenue shall originate in the House of Representatives” to “All Bills for raising Revenue shall originate in the House of Representatives, except for Revenue that the President raises by borrowing Money without Congressional authorization.”

 2.  The Borrowing Clause (Article I, Section 8, Clause 2) would have been amended from “Congress shall have the Power … To borrow Money on the credit of the United States” to “Congress and the President shall each have the Power … To borrow Money on the credit of the United States, but Congress can only borrow Money by enacting a Statute that is subject to Presidential veto, while the President can borrow Money without any Congressional authorization.”

3.   The Public Debt Clause (14th Amendment, Section 4, Clause 1) would have been amended from “The validity of the public debt of the United States, authorized by law, …, shall not be questioned” to “The validity of the public debt of the United States, whether or not authorized by law, …, shall not be questioned.”

4.   The Enforcement Clause of the 14th Amendment (Section 5) would have been amended from “The Congress shall have the power to enforce this article by appropriate legislation” to “The Congress shall have the power to enforce this article by appropriate legislation, while the President shall have the power to enforce the first sentence of Section 4 of this article by executive order.

5.   The Appropriations Clause (Article I, Section 9, Clause 7) would have been amended from “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law” to “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law, except for Money drawn from the Treasury that the President raised by borrowing without Congressional authorization.” 

This manner in which the Appropriations Clause would be amended is particularly interesting because it would parallel the way in which the Taxing Clause (Article I, Section 8, Clause 1) was amended in 1936-1937, to what is now called the “General Welfare Clause.”

A detailed discussion of how this amendment took place outside of Article V is beyond the scope of this post and will be addressed at a later time, but the bottom line is that the Supreme Court in a series of decisions (United States v. Butler in 1936 and Helvering v. Davis in 1937) used the Taxing Clause language “to pay the Debts and provide for the common Defense and general Welfare” to convert a limitation on the taxing power into an independent spending power.

Before 1936, this language meant that Congress could only raise taxes for three general purposes: (1) paying debts of the United States; (2) promoting the common defense of the United States; and (3) promoting the general welfare of the United States, all of which had well-understood public meanings when the Constitution was first ratified.  By 1937, this language had been changed to mean that Congress now had a spending power that was no longer incidental and subordinate to the principal powers enumerated in the Constitution.  The problem was  greatly compounded, when as part of this amendment process, the Supreme Court gave Congress the exclusive power to define “general welfare” as it wished.

The linguistic sleight of hand by which the Supreme Court amended the Taxing Clause was to assume that any tax revenue raised for the “general welfare” could also be spent for the “general welfare” (defined as broadly as Congress wishes), rather than for the far more limited purpose –  imposed by the Necessary and Proper Clause (Article I, Section 8, Clause 18) – of implementing just those powers enumerated in Section 8 and elsewhere in the Constitution.

Returning now to the Appropriations Clause, opponents of the debt ceiling are making the converse argument.  Whereas the amended “General Welfare Clause” enables Congress to spend whatever tax revenue it can raise, opponents of the debt ceiling now want the Appropriations Clause to mean that the President can raise whatever tax revenue Congress decides to spend.  Such is what passes for constitutional debate these days.

The lead article in today’s Washington Post is all about how House Republicans, following a two-year strategy, “created a majority and gave itself a ‘leverage moment’ in the epic clash over the debt deal.”  When the yet-to-be proposed balanced budget amendment is rejected later this year, and the new super-committee is deadlocked over tax and entitlement reform, I seriously doubt many of the Tea Party-inspired Republicans will feel enthusiastic over the “epic” victory they supposedly achieved last week.

If this happens, we will only have the promise of $1.2 trillion in future “spending cuts” that are supposed to be automatically enforced by the new “sequestration” rules.  At that point, we may re-discover that sequestration can be also waived by Congress.  Are we then left with having to wait for another debt ceiling “epic clash” in 2013?  Maybe, but if so, opponents of another debt ceiling increase should start planning now.

As it turns out there is a strategy that fiscal conservatives can pursue – without waiting for the new “super-committee” – which will not only (i) make the debt ceiling a real ceiling the next time around, but also (ii) create a realistic chance for adopting a balance budget amendment that is not only enforceable, but also self-executing.  This strategy will be the subject of the next four posts.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

With today’s House vote passing the Republican-sponsored “Cut, Cap, and Balance” bill (H.R. 2560), the Balanced Budget Amendment (BBA) is back in the news.  Unfortunately, supporters and opponents alike continue to mischaracterize what the BBA would actually accomplish if it were ever adopted.

A perfect example is the first sentence in this July 14th editorial from the Washington Post:

     “Amending the Constitution to require a balanced budget is a bad idea that never dies.”

Of course it is a bad idea – at least if this means requiring a balanced budget all the time.  The BBA, however, does not require a balanced budget all the time and, more importantly, does not enforce a balanced budget at any time, although you would not know this from the debate so far.

If the BBA did require a balanced budget, then the Washington Post would indeed be right that it would “deprive policymakers of the flexibility they need to address national security and economic emergencies.”  The need for such flexibility, however is precisely why the BBA has multiple provisions for waiving the so-called “requirement” of a balanced budget (as previously noted here).

Thus, Congress can waive it anytime for any reason with a 2/3rd or 3/5th super-majority vote.  Or Congress can waive it with an absolute or simple majority any time a formal declaration of war is in effect.  Or, finally, Congress can waive it with just a simple majority any time an “imminent and serious military threat” is declared by an absolute or 3/5th majority.  (The voting thresholds vary according to each proposed version of the BBA.  The “Cut, Cap, and Balance” bill endorses three such versions: H.J. R. 1 , H.J.R. 56, and S.J.R. 10).

In other words, the BBA operates just like the national debt ceiling if a “military threat” is declared, which of course is currently the case with the 9/11 “Authorization for Use of Military Force” Resolution enacted in September 2001.  The debt ceiling is only a “ceiling” until Congress raises it by simple majority; and the BBA only “requires” a balanced budget until Congress waives it, also by simple majority.

BBA supporters will argue that the various super-majority voting requirements noted above will be meaningful, but they would only take effect if Congress first rescinded the 9/11 Resolution, which is not likely to happen anytime soon, particularly since the same conservative politicians promoting the BBA are among the staunchest supporters of the global war on terror.

The irony here is that BBA supporters keep insisting on a floor vote on the BBA as a condition of raising the debt ceiling.  One can only wonder what their Tea Party supporters would say if they understood that the BBA is just a constitutional version of the statutory debt ceiling, and just as ineffective.

Like the debt ceiling that we are now debating, the “debt ceiling” embodied in the BBA will be “raised” (i.e. waived) every time we are confronted with the same specter of fiscal Armageddon that we now face on August 2 (or whenever President Obama refuses to make our debt service obligations the highest payment priority).  These debt ceiling struggles may result in periodic compromises that make modest cuts in annual deficits, but they will not result in actual surpluses that reduce the national debt, which of course will keep increasing each time the national debt ceiling is raised.

If we are going to go down this road with the BBA, then we should ask the same question that is now being raised in the current debt ceiling debate:  What should, could, or must  the President do constitutionally if the debt ceiling is not raised, or if a future BBA “requirement” were not waived.  This issue will be addressed in the next post.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

When the Framers adopted Montesquieu’s separation of powers framework for the 1787 Constitution, the point was to divide political power between Congress and the President, not between opposing political parties.   From the beginning, however, there has been no escape from party conflict, whether the Federalist v. Anti-Federalist debates of the 18th Century or today’s divide between Democrats and Republicans.

Not surprisingly, a frequent lament among voters and commentators alike is the inability of our political leaders to cross party lines and reach compromise solutions.  But as Senator Robert Byrd (D-WV) often reminded us, this is precisely the type of political courage that supporters of the Balanced Budget Amendment wrongly believe we can legislate into the Constitution.

 If we truly want Congress to be less partisan and more willing to compromise, then we need to invoke the old saw that the enemy of my enemy is my friend.  For Congress the “enemy” should not be the other party, but rather a constitutional penalty that applies to the institution as a whole, so that both parties are affected equally and all Members of Congress are at similar risk.  If Democrats and Republicans both view such a penalty as the “enemy,” then each side has an incentive to become the other’s “friend.”

Bipartisanship of course is not a solution in itself.  For decades Congress and the President have frequently joined in a bipartisan effort to increase the scope, size, and cost of government.  Instead, what is needed is a bipartisan (or non-partisan) constitutional penalty for deficit spending.  What would such constitutional penalty look like?

The answer lies in recognizing what Members of Congress value most, regardless of party affiliation, namely: (1) political power; (2) tenure in office; and, to a lesser extent, (3) the compensation they receive as government employees.  A loss in any of these areas can be viewed as a penalty, so here are three concrete solutions, all of which admittedly require a constitutional amendment:

First : a novel type of item veto that shifts the power of the purse from Congress to the President, but only until Congress balances the budget – call it a Balanced Budget Veto Amendment;

Second: a requirement that Members of Congress leave office if they serve for five consecutive fiscal years of deficit spending – call it a Balanced Budget Rotation Amendment;

Third: an automatic reduction in the compensation of Congress by the same percentage by which each fiscal year is financed by deficits – call it a Balanced Budget Compensation Amendment.

A detailed discussion of these three proposals will have to await future blog postings.  For the present, I would just note that each of these penalties have the following elements in common:  (1) they would give all Members the same institutional stake in balancing the budget; (2) they would be nonpartisan in not favoring one political party over the other; (3) they would threaten sanctions severe enough (collectively, if not individually) to overcome each Member’s fear of political retribution from balancing the budget; and (4) they would be self-executing in that judicial enforcement would be rare and annual budgets would not become embroiled in perpetual litigation.

An institution-wide penalty is appropriate because no single Member of Congress can be held responsible for failing to balance the federal budget.  Moreover, Congress is a political institution so the penalty for failing to balance the budget should be political, not judicial, in nature.  Elections are political of course, but the very nature of elections must favor one party over the other and thus cannot provide the institution-wide pressure needed to overcome the pervasive political gridlock in Washington.

When it comes to deficit spending or the national debt, if you want political courage, then you must first legislate political fear.  Any serious effort to rein in the growth of government, much less impose actual cuts in spending (as opposed to phantom cuts in the growth of spending) must threaten a loss of political power or loss of political office or reduced compensation for all Members of Congress across both parties and the entire ideological spectrum.

Each of the three proposals described above legislates a different type of political fear, and they can stand alone as separate amendments.  Or they can be joined into a single omnibus amendment – let’s call this one the Fiscal Enforcement And Responsibility Amendment, or FEAR Amendment for short.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

In October 1993, the leading opponent of the Balance Budget Amendment (BBA), Senator Robert Byrd (D-WV), issued a challenge to his colleagues that no one in Congress has ever met.  In a Washington Post op-ed piece, he demanded to know why Congress would balance the federal budget just because a constitutional amendment required it:

“Saying it will not make it happen, even if it is the Constitution that says it…. The bottom line is courage.  I do not see how a constitutional amendment will give us politicians any more spine than we now have.”

Senator Byrd was arguing that you cannot legislate political courage, but is this really true?  The ineffectiveness of the national debt ceiling certainly suggests that it is true, as do similar statutory failures like the Gramm-Rudman-Hollings law.  The last-minute budget compromises that typically end these political fights, however, provide a better answer to Senator Byrd’s challenge: instead of trying to legislate political courage, we need to find better ways of legislating political fear.

Suppose you are on a plane, and the flight attendant hands you a parachute with instructions to jump because the plane is flying into a dangerous storm.  Would you have the “courage” to jump?  Probably not – even if you believed the plane was in danger.  Now suppose the entire crew tells you that the plane is going to crash, and they proceed to jump themselves.  Chances are you would quickly summon the “courage” to follow them, regardless of any misgivings.

Jumping from a plane in these circumstances would doubtless show courage, but it would not be courage that motivated you to jump.  Rather it would be the fear of an unacceptable alternative.  Similarly, Congress will have the political “courage” to balance the budget only when they fear something greater than the political backlash they now dread from cutting spending or raising revenue with higher taxes.

How do you legislative political fear?  I will offer concrete answers to this question in later posts, but for the moment let us start with the premise that Congress will only make the hard choices needed to balance the federal budget when a penalty exists that makes it more painful to Congress not to balance the budget.

This is what House Republicans were trying to accomplish in April with their hold-up of funding for the remainder of 2011, and what they are trying to achieve now with the debt ceiling.  The problem with forcing hard choices by refusing to raise the debt ceiling or pass annual spending bills is that these actions, if implemented, would penalize the country — not Congress — with fiscal chaos or government shutdowns.  Instead of harming the country as a whole, any constitutional penalty for deficit spending should be aimed at Congress, which after all is the institution responsible for both taxing and spending.

Of course, the President has an important role to play in proposing an annual budget, but no constitutional amendment is needed to hold the President accountable for this role in the budget process.  Congress has all the constitutional authority required to pass a statute compelling the President to propose a balanced budget and/or spending less than 18% percentage of GDP.  Indeed, the current version of the BBA contains such a requirement, but its supporters cannot explain why a superfluous provision like this is needed.

 Congress, on the other hand, will only act if there is constitutional penalty for failing to act.  One would like to think that the Constitution already provides such a penalty by giving voters to ability to vote out profligate legislators.  Experience has shown, however, that voters cannot effectively pressure Congress to limit spending, regardless of their support for a balanced budget in the abstract.

 Fortunately, the Framers did not simply rely on elections to rein in our politicians.  They also created a system of limited enumerated powers that would be exercised in a separation of powers framework designed to have our branches of government keep each other in check. To rein in deficit spending we need an institutional penalty directed at Congress that invokes and strengthens this framework.  What an institutional penalty of this nature might look like will be the subject of the next post.

 Copyright © 2011 Anthony W. Hawks. All rights reserved.

Supporters of the Balanced Budget Amendment (BBA) will argue that we need a supermajority voting requirement to authorize deficit spending precisely because it will be much harder to do so than raising the debt limit under current law.   But suppose the BBA had been adopted prior to 9/11.  Does anyone really believe that Congress would have refused to waive the balanced budget requirement by a supermajority? In all likelihood it would have been a unanimous or near unanimous vote.

Similarly, what do you think would happen if the President were to announce that Social Security and Medicare checks have to be delayed or withheld altogether, or that funding for the troops in Afghanistan would have to cease, because the BBA’s 18% (or 20%) GDP spending cap has been breached and any further spending would unconstitutional? Either the President would openly ignore the constitutional mandate (so much for the rule of law), or more likely Congress would grant a waiver in a heartbeat.

It also matters which waiver Congress wants to invoke.  In the current House and Senate versions of the BBA, there are a total of five waivers that would permit Congress to: (1) authorize deficit spending; (2) allow spending above the designated GDP threshold; (3) raise the national debt (or at least debt held by the public); (4) waive all requirements in a time of declared war; and (5) waive all requirements if there is a military conflict declared by Congress to be an “imminent and serious military  threat to national security.” 

The first two waivers are time limited to the current fiscal year.  In other words, Congress must invoke the waiver (by a two-thirds or three-fifths vote) each fiscal year it wants to authorize deficit spending or allow spending over the GDP cap.  The third waiver must be invoked (by a three-fifths vote) each time it becomes necessary to raise the debt ceiling, but Congress can invoke this waiver anytime it wishes.

The “declared war” and “military threat” waivers, however, are what expose the BBA as an illusion with no more enforcement power than the statutory debt ceiling.  First, they have no sunset provision, and thus the resolutions declaring war or a military threat can remain in effect indefinitely.  As a result, and as long as they are in effect, Congress can invoke any of the first three waivers (i.e., deficit spending, GDP threshold, and debt ceiling) not by some supermajority vote, but merely by a simple majority (under the “military threat” waiver or the House version of the “declared war” waiver) or by an absolute majority (under the Senate version of the “declared war” waiver).

The “Authorization for Use of Military Force” Resolution enacted in September 2001 in response to 9/11 is precisely the type of undeclared war, but “imminent and serious military threat” waiver envisioned by the new BBA.  This 9/11 resolution of course was easily passed by a supermajority vote in both Houses of Congress (98-0 in the Senate and 420-1 in the House).  Thus, even if the BBA were now part of the Constitution, its only impact would be to require annual waivers by simple majority votes, which is exactly what Congress is already authorized to do under the Constitution.

To be sure, battles over future BBA waivers could lead to insignificant compromises over spending and taxes similar to what is likely occur in the current debt ceiling debate, but why go to the trouble of amending the Constitution to achieve what we already have?  More importantly, if a constitutional amendment like the BBA is no better than a statutory limit on the national debt, then what is the solution? What exactly would an enforceable balanced budget mandate look like? The answer lies not with another plan for balancing the budget, but rather in how we can create the political will necessary to balance the budget. It is this issue that will be addressed in a future blog post.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

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