By Charlie Arlinghaus
Originally Published in the New Hampshire Union Leader
Politicians are incapable of doing the right thing on their own. Without some sort of artificially imposed rules, they will continue along in their hapless way on the road to destroying the country. The federal budget is a problem that can only be solved by going back to the 1980s.
The broad outlines of the country’s fiscal policy are well known. Federal politicians almost never balance the budget. Instead they borrow money from our children (and, at this point, grandchildren) to pay for the things they want to spend money on today. There is not a realistic hope of ever paying off all the debt they are accumulating.
The federal budget has been balanced in only four of the last 50 years and then only nominally (actually they used the excess of social security contributions over payments to improve cashflow). The last four Clinton budgets achieved a nominal balance but none of the budgets since then have.
Under the president’s proposed budget, debt held by the public would double to 87% of the gross domestic product. Total debt is already about 100% of the size of the economy.
Since World War I, the country has had a statutory limit on the amount of debt allowed. In a debate over raising that limit for the eleventh time in the last ten years, politicians have been able to posture about the need for so-called spending cuts.
Like almost every other debate in Washington, the debate and cuts are fake. No one in Washington on either side of the aisle has actually proposed a spending cut. What they propose is spending a lot more money but not quite as much more as they were planning.
In New Hampshire, we use normal math. The state just cut spending by more than 10%. We passed a budget that is 10% lower than the prior two-years.
The federal government develops a “baseline” for official spending. They plan on increasing spending by 4.6% in each of the next ten years and spending a total of $46 trillion over those ten years. If they reduce the rate of increase to 4.1%, they will have, by their definition, cut spending by $2 trillion. By New Hampshire’s definition, what they call draconian cuts are an increase of 50% over ten years.
The problem is cultural. They don’t actually have to balance the budget so they don’t. The four years of quasi-balance in the 1990s came as a result of divided government (I hate your spending and you hate mine) and mild restraint during an economic boom.
The solution championed by our Sen. Kelly Ayotte is a balanced budget amendment to the constitution. I am generally reluctant to amend the constitution but this may be a case where the structure of government has failed us and has to be corrected. Regardless, an amendment will take years to go through the process and be ratified by the states.
More immediate action can and should be taken. The model for this action comes from the 1980s and former Sen. Warren Rudman. In the 1980s the annual budget deficit had grown to what was seen then as an obscene level. The annual budget deficit in 1983 was 6% of gross domestic product (in 2010, it was 9%).
Sen. Rudman along with Phil Gramm and Ernest Hollings recognized that the Congress needed to be prodded. They set up a path of lower deficit targets each year until the budget would be balanced in ten years. If Congress didn’t meet the target, an automatic sequester would cut every area of government by an equal amount to meet the target. The threat forced politicians of the 1980s to act and cut spending themselves.
From 1983-1989, the Gramm-Rudman bill lowered the annual deficit from 6% of GDP to 2.8%. Spending went up each year but grew slower than the economy as a whole. But Congress repealed the restraint in 1990.
A new Gramm-Rudman could be enacted by people who both support a constitutional amendment and those who don’t as part of a debt ceiling compromise. The advantage is it would go into effect immediately and force Congress to act. In addition, enforced deficit targets are policy neutral. The target must be met and the deficit gradually erased. The policy decisions to get there are still a matter for debate. Those who want to raise taxes can make that argument. Those who want to cut spending can make that argument.
An agreement over the debt ceiling issue will only be serious if it includes an enforcement mechanism not just feel good rhetoric. The model for action comes from right here in the Granite State. It worked when Sen. Rudman proposed it and will work again.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free market think tank based in Concord, New Hampshire