The Congressional Budget Office forecasts that under current law, federal debt will continue to grow at an unsustainable rate. It will be difficult for the United States to avoid a fiscal cliff and restore sustainable levels of debt.
The debt crisis in this country is not unique. Over the past half-century, every developed country has experienced periods when debt increased more rapidly than national income, exposing the country to increased risk of default. For example, in the late 1980s and early 1990s, Sweden and Switzerland experienced sharp recessions accompanied by unsustainable growth in deficits and debt. Fiscal stress led them to experiment with new fiscal rules designed to constrain debt.
There are several reasons for the success of these countries in enacting new fiscal rules restoring sustainable levels of public debt. The rules apply to a comprehensive budget that includes all expenditures, with specific provisions limiting spending on social security programs.
The rules achieve structural balance by limiting growth in federal spending to long-term growth in national income. The rules are flexible in achieving fiscal balance over the business cycle and in providing for emergency spending, but deficits incurred in a recession must be offset by surplus revenue in periods of economic expansion.
New fiscal rules have since been enacted in a number of countries. With these rules incorporated in their constitutions, the countries have stabilized debt and restored sustainable fiscal policies in the long term. With empowerment by the courts, these countries have removed much of the bias toward deficits and debt in the budget process.
There is a growing consensus on the design of the new fiscal rules. The rules link fiscal policy to fiscal targets. Linking expenditure rules to debt targets is essential for debt sustainability in the long term. Tolerance levels are set for deficits and debt that can trigger more stringent limits on expenditures in the short term. These deficit and debt brakes provide guardrails that prevent fiscal policy from going off track.
These rules are complemented by rules that provide for emergency funds, escape clauses and capital investment funds. With these rules in place, countries not only can achieve debt targets in the long run but also have the flexibility to pursue stabilization policies in response to financial crises and other economic shocks in the short run.
Enacting new fiscal rules in the U.S. faces formidable challenges. Citizens must first recognize that the statutory fiscal rules now in place have failed to solve the debt crisis. Congress has circumvented or abandoned these statutory fiscal rules in the long term. Only with constitutional fiscal rules, enforced by the judicial system, can citizens hope to restore prudent fiscal policy and sustainable debt.
Many resolutions proposing constitutional fiscal rules have been introduced in Congress over the years, but none of these resolutions received the requisite two-thirds vote required to submit the proposed amendments to citizens for ratification. Fortunately, the Constitution provides an alternative route for citizens to amend the Constitution; Article 5 provides that the states as well as Congress can propose amendments.
The Article V Library provides a list of state applications published in the congressional and state records. According to the records, Congress failed its mandate to “call a Convention for proposing Amendments” in 1979, when 39 states had passed “continuing” applications.
Recent legislation introduced by Rep. Jodey Arrington, Texas Republican, would require Congress to fulfill its obligation under Article 5 to certify and count the state applications and call the convention. Mr. Arrington, along with co-sponsors, submitted House Concurrent Resolution 24, which calls for a Fiscal Responsibility Amendment Convention and establishes the archivist’s role in counting Article 5 state applications.
While Mr. Arrington’s resolution has not gained much traction in Congress, private organizations are now working with state legislators in an appeal to the Supreme Court for a declaratory judgment that would require Congress to record and count the state applications.
The outcome of this constitutional battle will have important implications for the future prosperity of the country. If the declaratory judgment succeeds, this will set the stage for an amendment convention in which delegates could design and incorporate a fiscal responsibility amendment in the Constitution.
We should expect citizens to support a constitutional amendment to constrain the fiscal powers of the federal government. A fiscal responsibility amendment may be the only way that the country can avoid a fiscal cliff.
Barry W. Poulson is on the board of directors of the Federal Fiscal Sustainability Foundation.
Reprinted with Permission from The Washington Times – By Barry W. Poulson
The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.