02.28.2010 0

GOP Spending Limit Amendment a Good Start

  • On: 03/05/2010 09:43:51
  • In: Fiscal Responsibility
  • By Bill Wilson

    This week, the House Republican Conference, represented by Congressmen Jeb Hensarling, Mike Pence and John Campbell, presented a solution to the U.S. sovereign debt crisis that promises to finally bring the federal government’s unbridled spending out of the red.

    The problem, of course, is well-known: Congress spends far, far beyond its means, as ALG News has previously reported. In 2010 alone, the budget deficit will total $1.556 trillion, all of which will be piled atop the mounting federal debt, currently at $12.4 trillion. As a percentage of the Gross Domestic Product (GDP) — currently at $14.461 trillion — the debt could top 100 percent in 2013 by the White House’s own estimates, if not sooner.

    Compare that with Greece, for example, whose national debt now will grow to 121 percent of GDP in 2010. With its credit downgraded, its ability to sustain unbridled government expansion has been reduced. In the U.S., the nation still has a choice whether to restrain government by choice, or whether the markets will do it by force.

    As stated in the Republican plan, “[W]e propose a Spending Limit Amendment to the Constitution of the United States to limit spending to one-fifth of the economy—the historical average for spending since World War II. The limit could only be waived if a declaration of war was in effect or by a two-thirds vote of Congress.”

    Although the plan does not explicitly provide for a balanced budget, by mandating that spending be no more than a fixed 20 percent of the economy as a whole, debt service payments would actually outpace deficit-spending. How?

    According to the proposed amendment, “Total outlays shall include all outlays of the United States Government, except for those for repayment of debt principal.” This is a critical provision, because it means that interest payments will remain on-budget. Thus, Congress would be constitutionally required on an annual basis to service the national debt out of revenue.

    Debt repayment, on the other hand, occurs through the sale of new treasuries off-budget, and through the application of surplus revenue on-budget. The latter rarely happens, but under the proposal, would become much more likely if supply-side tax policy is applied to enable the economy to sustainably grow. The goal would be to make certain the economy grows faster than the debt.

    Under the proposal, in 2020 for example, spending would be limited to 20 percent of the $24.323 trillion projected GDP: $4.865 trillion. Believe it or not, that’s real progress: It is $848 billion less than Obama’s proposed $5.713 trillion budget for 2020.

    Even better, it would only result in a $155 billion deficit for that year, compared to Obama’s proposed $1.003 trillion budget deficit. In Washington, that’s a good start. It would eliminate the current crowding-out effect the current budget deficit imposes upon the economy.

    Now, compare the $155 billion deficit to the interest owed on the debt for that year, which will total $840 billion, a difference of $685 billion. That is highly significant because it would mean the debt will mature faster than it grows.

    Under Obama’s budget, on the other hand, in 2020 the debt will grow by $1.003 trillion, faster than it is being serviced by $163 billion. That is simply unsustainable.

    There is another way: the Spending Limit Amendment. Under the proposal, out of a total, constitutionally-limited budget of $4.865 trillion, $840 would be dedicated to interest payments, leaving $4.025 trillion that Congress could spend on defense, entitlement, and other programs. Government would actually be forced to pare back and prioritize its spending for a change within the constraints of keeping up with the nation’s financial obligations.

    Importantly, because spending would be limited as a fixed percentage of the nation’s ability to pay for it, the economy will finally be afforded the space to grow faster than the debt.

    This is the critical point: under the proposal, the national debt would be significantly reduced as a percentage of the GDP. Under the proposal, in 2020, while the economy would grow at 4.3 percent, the debt only would grow by 3.1 percent.

    As time moves on, the distance between those two numbers would only grow. Again, that’s a good start — and way better than the alternative.

    It’s the difference between pulling back from the brink — or driving off the precipice.

    Bill Wilson is the President of Americans for Limited Government.


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