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A New Political Template: Fiscal Solvency as a Constitutional Bedrock

Garrett Fisher
April 24, 2020

There is nothing better than politics to suspend the ability for an audience to think rationally. It is for that reason that I avoid getting into the nitty gritty of political belief systems in my writing, as it is the antithesis of an effective solution. To debate one argument guarantees the loss of the opposing crowd. Conversation and dialogue seem to, in the most optimistic of situations, afford a chance to understand that a person with opposing views is human and perhaps isn’t as moronic, evil, or selfish as we think, though entrenched positions tend to remain similar even after civil dialogue.

I am going to propose a new model that would circumvent the importance of closely held political beliefs, allowing them to exist while subjecting them to a level of performance and responsibility that does not exist: fiscal solvency.

Some call it “fiscal conservatism,” though I think that is a misnomer. It would imply that those who belief in a balanced budget and sensible debt load are somehow traditional by nature, or belong to a specific political party. It also implies that the opposite is a fiscal “progressive” of some sorts, willing to try new ideas by engaging in political agendas financed by debt accumulation.

Neither is an accurate rendition.

In fact, both are dangerous, as it associates certain fiscal behavior as belonging to one political party or another, roping in all sorts of stereotypes and assumptions that are entirely unrelated. We can see at least one clear victim from this sort of association: a wrecked American budget, producing increasing debt for almost two decades.

My proposal is quite simple: whatever agenda is pushed through by whichever party or administration should be required to be paid for. Absent a recession, war, or another emergency, a budget should be close to balanced or slightly surplus in expansion years, and reasonably negative in times of crisis.

The prospect is very simple: no matter how reasonable, crazy, progressive, conservative, divisive, inclusive, pro-corporate, pro-welfare, or any other adjective a package of legislation may be, it must be paid for. If it is paid for (in actual budget dollars, not political illusions), then the situation would be self-correcting, as the electorate will render their opinion in each election cycle as to what they think about it.

The inherent brilliance is that it does not allow budgetary subterfuge to delay the consequences of poor policy. At present, an appropriations bill does not require a means to ensure that revenue exists to cover it; there is no requirement to pay for any bill that is signed into law. If it produces a deficit, is a political lie that it will be revenue neutral, or is an outright act of increasing national debt by virtue of spending, the mechanisms are equal: if Congress passes legislation and the President signs it that involves spending, and tax collections are inadequate to cover said appropriation, then the Treasury issues securities and borrows on the open market, automatically. There is no “second step” to go out and borrow, or additional mechanism imposed upon Congress or the President. Legislate. Spend. Let the accountants at Treasury borrow. It’s a machine with no immediate feedback mechanism.

In the past, deficits were regulated by two things that seem to not exist now: public sentiment and the market. The American people used to care much more about deficits and the size of national debt, whereas now the people are accustomed to an entire generation of increasing indebtedness without consequences. Prior to 2008, the market was a participant in purchasing US Treasuries, rendering a fundamental opinion on the viability of increased indebtedness. Starting in 2008, the Federal Reserve intervened in crisis situations, becoming a buyer of last resort to keep the financial system alive (on a smaller scale). Obviously, during coronavirus, that paradigm has expanded massively, where the market is circumvented. In March of 2020, the market for Treasuries started to seize, which is a reasonable proposition in light of ongoing deficits, global financial panic, and the sheer size of debt being manufactured. By stepping in, the Federal Reserve prevented an immediate implosion of the world as we know it, though it did remove one final consequence for the issuance of debt, as the market is no longer the primary participant.

I say all of this to affirm that there is almost no spending consequence immediately imposed upon Congress or the President, for any kind of spending. If a policy package can get put through, finances bedamned, then the argument is about the politics of it, and not necessarily the finances of it.

We are polarized politically to the point of gridlock in ever increasing ways. While an entire book could be written about the multiplicity of reasons behind it, one thing we did do was offer an unlimited purse, with little public or market consequence, to the political process. That, in turn, has caused venom and polarization to double-down intransigently over policy ideas, as that is the only thing to fight over. Reality (ie, paying for it) is not part of political dialogue, so beliefs make up for it.

The question becomes how one would impose such a requirement on Congress that legislation is paid for. It would have to be a constitutional amendment, or an expansive policy change on the legislative level. In the case of legislation, the structure would involve the formation of some kind of executive body that would monitor and report on each legislative package, increasing the publicity behind each bill in way that is not happening already. The Congressional Budget Office already exists, though the public seems desensitized to their continuous, nonpartisan reports on projected effects of legislative packages. Additional teeth would have to be added, though done in such a way that Congress wouldn’t tire under it and simply revoke it (as in the case of the debt ceiling, which no longer exists as Congress got rid of it).

I will not devote time to a legislative solution owing to its ability to be easily repealed. A constitutional amendment would be best, as it would limit Congress’ ability to get around itself, though it should afford the flexibility for government to run without being gridlocked and hamstrung. My proposal would be something as follows:

  • A multi-year view of surpluses and deficits (say three years), allowing time for one year’s hiccup to be made up in another year, before kicking in harsh consequences.
  • A requirement that the budget be balanced (within a reasonable range, such as a maximum deficit equal to last year’s inflation rate) in fiscal years where expansion is occurring. It would entail making a package of legislation “constitutional” only if there was room in the budget for its associated spending. If there was not room, then Congress would have to tax. If a law was passed that violated the amendment, its spending provisions could be struck down in court. This idea would have to be balanced against my “automatic adjustments to taxation” concept below.
  • Exceptions for war, natural disaster, and extreme situations, as determined by Congress.
  • Exceptions for periods of economic contraction or financial panic. I am tempted to include a provision other than Congress, such as a national vote, or a vote of state legislatures, as this provision could be manipulated.
  • Automatic adjustments to taxation are embedded into the amendment. If the budget is doing well, tax rates would automatically slide down across the board (corporate, estate, income). Conversely, if tax collections for prior spending do not live up to projections, tax rates move to meet the target. This would happen without Congress acting. If Congress did not like the direction of tax rates, then it would have to adjust spending.
  • Any provisions which could be manipulated by Congress would, in the amendment, limit the amount of time Congress could suspend its effect. For example, requiring a new vote every three months (or some other increment) to re-declare an emergency or some other provision that justifies the production of deficit.

Many are afraid of the government’s ability to tax, viewing it as a sprawling morass of mindless evil that denies the citizenry their right to property ownership. Some that hold those views have espoused the idea of “starving the beast,” meaning gutting tax revenue without reducing spending. The view is that the deficit will eventually force a smaller government, though we see that is not the case. Due to acclimation of the electorate and market tinkering, the government is as big as Congress and the President want to make it and can be as intrusive as it wants, with no market or financial fundamentals placing a limit on its size. A fiscal solvency requirement would associate spending with tax revenues and be more likely to deliver that which people of this view seek.

Why would I bring up those who hold a minority political view, some that is considered extreme or marginal? I do so to illustrate that my proposal is agnostic to the underlying political position; it is purely financial and can help positions of the left and right alike. Imagine if the Iraq War, 2008 bailouts, Obamacare, and 2017 corporate tax cut had to be paid for. Instead of seething at a particular President, or the Republican or Democratic political parties as the root of all evil, political discourse would quickly be backstopped by the reality that things cost money and if these things must be paid for, viewpoints change or bad ideas are forced to be reconsidered when the money doesn’t show up.

It is not to say that political rancor would suddenly disappear; it certainly would not. I would expect, as political pendulums swing back and forth, that various ideas would get passed that would be popular only to one party. Increased welfare? When taxes increase to cover it, the next election will be a reckoning. Cut corporate taxes? If personal taxes increase to cover it, the next election will be a reckoning. Start a war? You get the idea.

The ability for the largest economy in the world, which has the privilege of holding the world’s reserve currency as well as benefiting from many generations of greater fiscal prudence has permitted an ability to pursue deficits without consequence. That, in turn, has allowed outright lying, political subterfuge, and a polarization which is made possible by not having to face the consequences of decisions made. I really don’t care what is passed….as long as its paid for. The rest will come out, very quickly, in the wash.