Balanced Budget, or Spending Limit?

By Robert Romano



On March 2nd, in response to the escalating sovereign debt crisis spreading globally, House Blue Dog Democrats introduced a "Balanced Budget Amendment." A day later, the House Republican Caucus introduced their own "Spending Limit Amendment."



So, which is better?



A balanced budget sounds good, but if not coupled with limits on either taxation or spending, would become the means for annual automatic tax increases to "pay" for unbridled, ever-escalating spending.



Which, even without any amendments may be the plan Democrats have in mind anyway.



House Democrats, after all, have just presented another "deficit-neutral" version of ObamaCare. So, how do they balance their budget? In large part, with cuts in physician pay and Medicare, and by raising taxes by some $438 billion, including a new "3.8 percent tax would be imposed on interest, dividends, capital gains and other investment income for individuals making more than $200,000 a year and couples making more than $250,000," as reported by FOXNews.com.



In short, to provide government-run health care to over 30 million new people, House Democrats plan to reduce quality, ration senior care, and put heavy burdens on an already fragile economy. All of which tells us a little bit about what a life might be like under the Democrats' Balanced Budget Amendment.



In contrast, under the Spending Limit Amendment, federal spending would always be limited to 20 percent of the Gross Domestic Product except by declaration of war or two-thirds votes in both houses of Congress.



That would inherently limit taxation and spending to what the economy could afford to pay for.



Not so under the Balanced Budget Amendment. For example, if Congress votes to spend $4 trillion in a year, it has to find $4 trillion in revenue unless the declaration of war provision is invoked, or there is a three-fifths vote in Congress to deficit-spend.



Curiously, for the first time ever in the history of the Federal Constitution, the "Balanced Budget Amendment" includes entitlements: disbursements to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund can never be cut. Although, there appears to be no provision prohibiting the Congress from borrowing money out of those funds to pay for other items.



In short, a balanced budget can be good, but only if it includes a spending limit. Otherwise, raising taxes annually will become Congress' preferred means to pay for so-called "mandatory" spending on entitlements.



The hour grows late, and a spending limit is exactly the right prescription. As ALG News has previously reported, the U.S. could have its credit downgraded as soon as 2014, which would result in much higher interest rates, higher taxes, an even weaker dollar, and a devastated economy. As soon as possible, the U.S. needs to reduce interest payments on its debt. That number must stay below 14 percent. If it doesn't, the U.S. Triple-A debt rating will be downgraded.



The nation has to decide how it will restrain itself. Congress needs to be constitutionally constrained in how much it can spend, not constitutionally permitted to tax as much as it wants to maintain the entitlement state. The Spending Limit Amendment fits the bill.



Robert Romano is the Senior Editor of ALG News Bureau.