OPINION:
The U.S. has joined the southern tier of European countries as one of the most highly indebted nations in the world. In these countries, debt has been growing more rapidly than national income for decades, exposing these countries to fiscal instability and risk of default.
In contrast, some European countries have enacted new fiscal rules to constrain deficits and debt. The precedent for these fiscal rules is the Swiss debt brake, enacted in 2001 as a constitutional amendment through a referendum with the support of 85% of Swiss citizens.
This fiscal rule caps the growth rate in government spending at the long-term growth rate in national income. With Swiss-style fiscal rules in place, countries have stabilized and reduced debt as a share of national income with economic outcomes including lower inflation rates, rising living standards, and lower borrowing costs.
This month, the German Finance Ministry issued a wake-up call to highly indebted European countries. Germany proposes that highly indebted countries cap the growth rate of government spending to 1% less than the long-run growth rate in national income until sustainable debt levels are achieved.
While Germany’s call for effective fiscal rules was aimed at highly indebted countries of Europe, the need for a binding spending growth limit applies to the U.S. as well.
A responsible spending growth limit needs to be enacted in the U.S., given the debt fatigue we have experienced in recent decades. Unfortunately, Congress’ prospects for enacting a binding spending growth limit are almost nil. Congress has suspended the spending caps incorporated in the Budget Control Act of 2011.
Some argue that the outcome of the current debt ceiling battle could be a “grand bargain” that constrains the growth of federal spending, but this is wishful thinking. The only “grand bargain” that has historically been reached in negotiations to lift the debt ceiling is one that allowed defense spending to increase at the same rate of growth as nondefense spending.
This Faustian “grand bargain,” incorporated in the Budget Control Act of 2011, allowed total spending to continue to grow more rapidly than national income for two decades. Congress must end this “grand bargain” and constrain the growth in total spending, excluding Social Security. The president and Congress should also embrace the creation of a statutory Fiscal Sustainability Commission as proposed by the bipartisan House Problem Solvers Caucus.
Effective fiscal rules should include exceptions to a spending growth limit in periods of military conflict upon approval by a supermajority vote in Congress. In a military conflict, Congress should follow the precedent set by President Harry Truman during the Korean War; Truman cut nonmilitary spending to provide more fiscal room for military spending.
There may be periods when defense spending should increase more rapidly than nondefense spending, such as military budgets in the 1980s. Still, there may also be times when defense spending should grow less rapidly or even decline, such as the Great Moderation years of the 1990s after the end of the Cold War. We should return to the “Old-Time Religion” practiced for centuries, that deficits incurred during a military conflict are offset by limiting spending growth to less than the long-run rate of growth in national income in peacetime.
Once a defense budget is agreed upon in Congress, consistent with the spending growth limit, it should be up to Congress to decide how to prioritize defense spending to stay under the limit. This could include policies such as a BRAC type of commission to prioritize all defense spending (assuming that this is constitutional). A base defense budget should be adjusted for risk factors. This risk factor is high in the current political environment, given the war in Ukraine and the unholy alliance of Russia, China and Iran. There is a lot of waste in defense (e.g., way too much overhead, micromanagement of weapon systems, bases, etc., by Congress). Therefore, we need to rationalize the base first.
We must abandon the hope that Congress can somehow negotiate a “grand bargain.” Effective fiscal rules must be enacted to constrain the growth in total spending in the long term, just as European countries have. With a stringent Swiss-style fiscal rule in place, the U.S. debt burden could be stabilized and reduced to a sustainable level.
Since Congress has failed to enact effective fiscal rules, citizens must now enact these rules through an Article V amendment convention.
This effort achieved a breakthrough this year when House Budget Committee Chairman Jodey Arrington, Texas Republican, introduced HCR 24, which would establish a path for the states to draft and the people to ratify a fiscal responsibility amendment to the Constitution. The resolution, if approved by a simple majority vote in Congress, would set the date and place for a Convention of States for proposing amendments and require a vote of the people in three-fourths of the states to approve any proposed amendments.
Recent independent research of the Congressional Record reveals that Congress failed to perform its constitutional mandate to call a Convention for proposing a fiscal responsibility amendment in 1979.
The Federal Fiscal Sustainability Foundation requests that state attorneys consider a mandamus case to force Congress to fulfill its duty, as described in HCR 24, and return the country to a sustainable fiscal path that passes on the American dream of peace and prosperity for generations to come.
• Bill Owens, Barry Poulson, David Walker and David Biddulph are founding board members of the Federal Fiscal Sustainability Foundation.
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