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Time to Pushback- Add the Balanced Budget Amendment

How to go back on offense

Republicans are on the defensive, to confirm just look at “Plan B”. When was the last time Republicans even considered voting for tax increases? Oh yeah, 1990, and we all know how well that turned out for Republicans.  How do we go back on offense? Simple, pass the balanced budget amendment. Here’s why.

1. Republicans, even with “plan B” are the anti-tax party, and are only pushing “plan B” to save most of the tax cuts. It is pointless to have a balanced budget amendment without an anti-tax party, because as we all know, its the spending that is the problem. Even with “plan B” the Republicans are still the anti-tax party.

2. The key to long term tax rates staying low is to cap spending. As Milton Freedman said, “spending is taxing”. So, eventually we will have to deal with the spending and especially the deficits. If you have item 1, with a low tax party in place, then you can proceed to capping spending. This is what a Balanced Budget Amendment accomplishes.

3. Economic Growth- this is the real long term solution. Using the rule of 72, if we can average 3.25% growth (the average growth from 1947-2012) this would take 22 years to double the US GDP. Since 2000, the growth rate is 2%, so it would take 36 years to double the US GDP. Once we have a budget that is balanced, the current debt will reduce constantly. However, if we do not stop adding to the debt we will never get this under control.

4. Most importantly the key to a balanced budget working is using the low tax party to hold their ground and then spending would be required to be reduced long term in relation to GDP if taxes do not go up. Not only that, but as the size of the national debt reduces due to no additional debt added, slowly but surely this will be paid off. Since the interest alone is quite a bit of the percentage of spending currently, then as this reduces, in comparison to the size of the overall spending as no new debt is added, we will have more available for either reducing tax burdens or paying for spending increases.

Overall, if you had to have a budget in balance and a party that does not want to increase taxes, then by definition spending would HAVE to slowly decrease.

Imagine if 1 additional US Senator (and the states) approved the Balanced Budget Amendment in 1995. We were only 1 vote short in the US Senate. It would have taken 7 years to take effect, so debt in 2002 was 6.4 Trillion. We would then have had to work on balancing the budget and we would be 10 trillion less than we are now in debt. Also, with a 2/3 requirement to have a budget out of balance (my request below to be added to the amendment) Imagine, no TARP, no Stimulus, or all of that debt added by The Pelosi Congress or Obama.

 

What we need in a balanced budget amendment…

It would be great to get one with a spending cap, or supermajority to raise taxes. But to get this to pass, we need the following items included in the balanced budget amendment.

1. 2/3 Vote of both houses to vote for a budget not in balance. All US Federal Government spending is included (no off-budget process) and NO EXCEPTIONS. War is not needed to be spelled out, as during a war both parties would vote to support the troops as Democrats voted to pay for the surge in Iraq in 2007.

2. If a budget is not in balance the results are-

a. The difference is split 50/50, half is an automatic tax increase and the other half is an automatic spending cut. Both would be across the board.

b. All members of congress and the president, as well as their staff, have a 25% reduction in salary. This will not really impact the members of Congress, but will hurt the staff.

The key is no off budget spending, no exceptions except 2/3 vote, and we do not need the cap or tax supermajority if we have a party willing to stay firm on taxes. Even in years like 2008 when Democrats had total control, we did not see taxes go back to pre -Reagan levels. Not even to the Clinton levels. Even California Republicans were able to hold the line on taxes due to the 2/3 vote on taxes (or in my example the budget) until they lost the recent elections and are not even 1/3 of the California state legislature.

 

Now, how do we get this accomplished as Pay-Go and other non-constitutional amendments do not actually work? You have to offer Democrats something they really want long term as well.

Since 2012 was the “status quo” election, and Obama voters voted D and Romney voters voted R across the US House, there are not many Democrat House members that represent Romney seats that we can easily convert. Same goes for US Senate and even more in the State Houses.

13 States can stop a constituional amendment. I can imagine HI, CA, OR WA, IL, VT, MA, RI, CT, NY, NJ, DE, MD all stopping this. Even if we could get 2/3 of the House and Senate to back this (that means 23 US Senate Dem’s…not that many represent Romney or even Bush states).

 

A true Grand Bargain would be having the US House vote for a Balanced Budget Amendment. Then we would offer that those states that vote for the Balanced Budget Amendment will have all current debt purchased by the Federal Governement. We will also include unfunded pension liabilities. Since all states have some long term debt, this will allow all states to get back to balance. The total for all states is just under 5 trillion. This may sound insane to add to our Federal Debt which is roughly at 16 trillion. However, of that 16 trillion, roughly 5 trillion is held by intro-government agencies such as Social Security, and these are held in non-marketable accounts. The Federal Reserve also has nearly 3 trillion of the debt and plans on continuing to purchase more. If we sold these intra governmental holdings to pay for the states’ debt and unfunded liabilities, this could be a wash, and we would not add any additional debt, as we are only paying ourselves with the intragovernmental holdings.

Once the states have approved, we can then purchase those states’s debt. Then to reduce the debt, one area could be sale of Federal lands to the states, the Federal Reserve not purchasing additional debt, etc.

This is basically a Hamiltonian compromise for the 21st century. We back the debt of all the states and the Federal Government, and we can then stop adding to the debt due to the balanced budget amendment. As long as Republicans then play hardball on taxes, we can then work on long term compromises on spending for the federal government to get the budget in balance long term.

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