Saturday, October 31, 2015
Congress is Worthless for Limiting Spending
It is hard for people to grasp the magnitude of the U.S. debt problem—and what the ultimate “day of reckoning” will be. The national debt reached $1 trillion for the first time in 2009. It is now well over $18 trillion. That's the official total; the real total is much higher. Lawrence Kotlikoff, a professor of economics at Boston University, has calculated that based on Congressional Budget Office data the real debt is $202 trillion, more than eleven times the official debt. It is also about 3 times what the entire world produces, that is, global gross domestic product (GDP), which is $72 trillion. In 2013 Kotlikoff updated his debt calculation to $222. That's $700,000 per person, $1.9 million per household.
Kotlikoff says, “ Congress has been very careful over the years to label most of its liabilities 'unofficial' to keep them off the books and far in the future.” Professor Paul Gutterman says, “Congress plays games with the budget in so many ways that it is hardly a stretch to say that if it was held to the same accounting standards as public corporations, the entire Congress would be in jail for fraud.” Here are two examples of accounting gimmicks identified by Gutterman, which I describe in my book The Impending Monetary Revolution, the Dollar and Gold. Second Edition:
“Congress only budgets out ten years. The government receives immediate benefits of increased revenue from Roth individual retirement accounts, but the lost revenue occurs beyond ten years so is treated as never happening. In the 2013 fiscal-cliff agreement, this 'long-term revenue loser was scored as raising $12 billion over the next ten years.'
“The Congressional Budget Office says the four largest student loan programs will yield official saving of $135 billion in fiscal years 2015-2024; but it notes that under fair value accounting that is practiced in the real world, those programs would likely cost $88 billion rather than save $135 billion.”
Underlying the accounting gimmicks are fundamental realities that the gimmicks cannot mask indefinitely or prevent from asserting themselves as the future unfolds. Kotlikoff explains:“We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.
“This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck....It will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills. Worse than Greece. Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices.”
Both Republicans and Democrats have created the problem of government spending, and both have failed to solve it. Since 1980 the U.S. national debt ceiling has been raised 42 times, and both parties were complicit in that. In 2008 the deficit under George W. Bush was $458.6 billion, less than half a trillion, a record at the time. While running for president in 2008 Obama promised to cut the deficit in half by the end of his first term. Ha! That promise was worth no more than his oft-repeated promise that under Obamacare people could keep their insurance and their doctor and that the average family would save $2,500 on health insurance. Obama became the biggest spender in world history. In just the first six years of his presidency his deficits added more than $7 trillion to the national debt, more than all the presidents in our history from George Washington through George W. Bush combined. And the national debt limit was raised seven times under Obama.
Raising the debt limit has become a meaningless formality. Everyone knows it is a hollow gesture that will not control spending, because Congress will routinely raise the limit as it is approached in order to accommodate greater spending. Or the law will simply be violated as Obama has done:
The Budget Control Act of 2011was supposed to restrain federal spending. But in return for multiple rounds of spending cuts for the decade 2012 through fiscal 2021, it raised the debt ceiling $400 billion immediately and provided for even further increases. The act provided that if the distribution of spending cuts could not be agreed upon in those coming years, across-the-board cuts would be made, known as sequestration. The sequester budget cuts were subsequently postponed and reduced somewhat. Then Obama unilaterally reneged on his commitment to the law. The Washington Times reported, “Four years after agreeing to 'sequestration' budget cuts, the White House has emphatically told Congress that President Obama will no longer abide by them and will use his veto to insist that lawmakers boost spending on defense and domestic programs alike. In letters to the Republican chairmen of the House and Senate spending committees, Office of Management and Budget Director Shaun Donovan said sequestration 'was never intended to take effect' and that it was time to officially end the budget tool.” Though the president expects everyone else to obey the laws, he was flatly not going to do so. (This man was a lawyer?)
Now sequestration will henceforth be a meaningless formality just like raising the debt ceiling. The precedent has just been established which destroys it usefulness as a budget tool.
The Bipartison Budget Act of 2015, which has now been passed, is an even more shameful—and extreme—example of the familiar pattern of increasing spending along with the debt limit and pushing reform into the future. It accedes to Obama's violation of the law by dispensing with the sequestration budget cuts, not just the current ones but to sequestration previously agreed to for all the years through fiscal 2021. It would increase spending by $85 billion over the next three years, suspend the debt limit until March 16, 2017 and allow unlimited spending and borrowing until then. Significant cuts would not take place until 2015.
The underhanded way in which the law was crafted and passed is as despicable as the law itself is. It was negotiated in secret closed-door meetings of just four people: Speaker John Boehner, House Minority Leader Nancy Pelosi, Senate Minority Leader Harry Reid and Senate Majority Leader Mitch McConnell. Boehner had kept his party members in the House in the dark until the final product was introduced on October 26, with only a few days to the deadline of November 2 for avoiding financial default. Hence it was really too late for any meaningful opposition or even any input from Boehner's Republican colleagues. Obviously that was the way Boehner wanted it. He didn't want his own party members to interfere with his capitulation to Pelosi and Reid. He was more interested in satisfying them than members of his own party who elected him as speaker. When voters elect House members, they choose candidates who reflect their views and expect their voices will be heard in Washington. If those elected are excluded by their party leader from representing the views of the people who elect them, why should anyone bother to vote for a Republican? And why would anyone want to run on the Republican ticket? Now you know why Boehner resigned. After what he did to those who elected him to be speaker, you can sure they would never vote for him as speaker again.
Senator Mike Lee is a former law clerk at the U.S. Supreme Court and author of the book “Our Lost Constitution.” Speaking on the floor of the Senate, he called the new budget deal a “horrible piece of legislation,...a product of an unfair, dysfunctional and fundamentally undemocratic process, a process that is virtually indistinguishable from what we promised the American people a GOP-controlled Congress would bring to an end.”
A major detriment to controlling future spending—as well as his own party's political future—was Boehner's acquiescence to pushing the date for further budget and debt ceiling legislation to 2017. In addition to opening the door to unlimited spending in the meantime, it downgraded the importance of spending as an issue in the 2016 elections, making it more difficult for Republican candidates to win.
For many decades there have been attempts to control federal spending. These include proposed constitutional amendments requiring a balanced budget and returning to a gold standard, both of which are desirable and would not have permitted the expansion of federal spending we have seen. All have failed because the procedure employed required support from too many members of Congress who benefit from the status quo and don't want it changed. The procedure, which has been used for all past amendments to the Constitution, requires approval of two-thirds of both Houses of Congress. But the Constitution provides a second procedure for amendments, which has never been used. It provides that a convention be called for amendments if two-thirds of the legislatures of the states agree. The U.S. House and Senate will be left out of the loop.
Once a new convention is called, it cannot be limited to a single amendment; any number of amendments can be brought up for consideration. This would set the stage for adoption of amendments to overturn decisions of the Supreme Court, as I mention in my book. I shall mention here only one that should be overturned. The Constitution limits the legislative powers of the federal government; but in case United States v. Butler, 1936, the Supreme Court ruled that “the power to authorize appropriations of public money for public purposes is not limited by the direct grants of legislative power found in the Constitution.” I maintain that if government has no power to act beyond the enumerated powers, it should have no power to spend beyond those limitations either. A constitutional amendment to this effect would greatly reduce federal spending, but obviously it will never happen under the usual procedure for amendments, which involves Congress. Congress is never going to vote to limit its power to spend.
Another constitutional amendment I recommend pertains to unfunded mandates. These allow federal politicians to please their constituents—and garner votes from them—with spending the federal government does not pay for, because the costs are pushed onto the states.
For example, under Obamacare (Affordable Care Act) and the Dodd-Frank financial reform the president signed in 2010, the federal government imposed 86 unfunded mandates on state and local governments. There are six paperwork requirements related to ACA that each impose more than one million hours on local governments. Combined, these six impose 27.1 million paperwork burden hours that cost $880 million. Since Obama took office, his regulators have added $35 billion in unfunded regulatory costs and at least 75 million paperwork burden hours on state and local governments. These don't show up as federal expenditures, but Americans still have to pay for them.
States have no power to print money and must pay through taxes for federal mandates imposed upon them. State taxes should be for purposes determined by state government; federal taxes for federal purposes. We need a constitutional amendment that requires all federal mandates thrust upon the states must be paid by the federal government. That would certainly reduce the proclivity of the federal government for expanding its powers to dictate what the states must do and force them to pay for it.
Opponents of a convention by the states for proposing Constitutional amendments sometimes claim it might become a “runaway” convention, that too many amendments might be dangerous. This is absurd. The new convention would simply propose amendments. They would not take effect unless ratified by the legislatures of three-fourths of the states. That is the same process of ratification that was required for all previous amendments, which were achieved under the procedure originated by Congress. That is a very high bar to pass. If passed, it is far more likely the effect would be beneficial rather than dangerous. What we do know right now is that today's “runaway” government—of “runaway” spending—is already dangerous. And constitutional amendments such as I have suggest are our best option.