IF YOU LIKE THE NATIONAL DEBT CEILING, THEN YOU WILL LOVE THE BALANCED BUDGET AMENDMENT — Part 1

By Anthony W. Hawks

The current national debt ceiling has now survived its first political test, with the House of Representatives rejecting, in a symbolic 318-97 vote on May 31, the President’s request to raise the ceiling, without preconditions, by another $2.4 trillion. Warnings of fiscal Armageddon will continue for another 6-8 weeks, but the smart money still favors a debt ceiling increase tied to modest or perhaps minimal deficit reduction and/or a vote on some type of structural budget reform.

This post, however, is not a prediction of how the current debate will end. Given that neither party can gauge the economic or political fallout of failing to raise the debt ceiling, compromise is still the most likely outcome. But what if the Republicans actually got what they say they want, namely, structural change in the form of a Balanced Budget Amendment? What no one seems to have noticed is that a Balanced Budget Amendment would be virtually identical to the statutory debt limit in terms of imposing fiscal discipline.

The debt ceiling, of course, is no ceiling at all, having been raised 38 times since 1978, much like the ceiling of an elevator whenever you need to go to higher floor. True to form, the Obama Administration has been parading its list of horrible outcomes if the ceiling is not raised and the United States starts default on its financial obligations. This does not answer the critical question, however, of which obligations will not be paid if the current debt ceiling stays in place.

Obviously it makes a huge different if the nation defaults on its AAA Treasury bonds as opposed to, say, its “obligation” to fund ethanol subsidies or National Public Radio (NPR). This is where President Obama has created his own crisis: the reason it is irresponsible not to raise the debt ceiling right now is because there is no plan in place for establishing payment priorities if the debt ceiling is not raised. Either the idea has never occurred to President Obama or he fears that the existence of such a plan would make raising the debt ceiling more difficult.

The Obama Administration claims that it lacks the legal authority to establish payment priorities, asserting instead that all payment obligations stand on an equal footing. Thus, if funding for NPR came due before a Treasury note, NPR would have to be paid first, wreaking havoc in our financial markets. The General Accountability Office has disputed this legal interpretation, but regardless of who is right, the absence of certainty on this point could still cause severe market disruptions.

At least one lawmaker, Senator Pat Toomey (R-PA) has tried to address this problem by proposing legislation titled the “Full Faith and Credit Act” (S. 163, introduced January 25, 2011), which would give payment priority to principal and interest on the debt held by the public. Until such a law in enacted, or the next President unilaterally established payment priorities for the Treasury Department in the absence of express legislative authority, President Obama has the upper hand in the current game of “chicken” over raising the debt ceiling.

As a way of enforcing fiscal restraint then, the debt ceiling is no better than earlier statutory “fixes” like the 1985 Gramm-Rudman-Hollings law with “sequestration” rules for across-the-board cuts, or the 1990 Budget Enforcement Act with its caps on discretionary spending and “pay-as-you-go” (PAYGO) rules for mandatory spending. Since these attempts at curbing deficits were all statutory, Congress could and did abandon them at will. This is why, for decades, the conventional wisdom has been that only a constitutional amendment would force Congress to balance the federal budget.

No one argues, however, that the federal budget should be balanced all the time, regardless of national security or economic circumstances. If the goal were simply to eliminate deficit spending, then the only constitutional change needed is a repeal of the Borrowing Clause (Article I, Section 8, Clause 2), which empowers Congress “To borrow Money on the credit of the United States.” If the Federal Government could not then pay its bills, it would either have to default or (more likely) debased the currency by printing more money. This is why every proposed Balanced Budget Amendment has some type of waiver or escape clause to allow for deficits by supermajority vote, particularly in times of declared war, military threat, or national economic distress.

If Congress cannot stand firm on the national debt ceiling, it will be equally spineless in granting waivers under a Balanced Budget Amendment to avoid the same fiscal anarchy that will result from refusing the raise the debt ceiling. To understand why, one need only examine the actual waiver language in the current version of the Balanced Budget Amendment. This will be the focus of the next post.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

About Radnor Reports

Ken Feltman is past-president of the International Association of Political Consultants and the American League of Lobbyists. He is retired chairman of Radnor Inc., an international political consulting and government relations firm in Washington, D.C. Know as a coalition builder, he has participated in election campaigns and legislative efforts in the United States and several other countries.
This entry was posted in Anthony W. Hawks, Balanced Budget amendment, Federal budget, National debt, Thought-Provoking Analysis and tagged , , . Bookmark the permalink.

2 Responses to IF YOU LIKE THE NATIONAL DEBT CEILING, THEN YOU WILL LOVE THE BALANCED BUDGET AMENDMENT — Part 1

  1. Bobo Not the Clown says:

    I hope you keep up the good work I like the approach.

  2. Bette says:

    hey!! this is an awesome idea! why can’t we get this done?:)

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