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Backgrounder #899 on Federal Budget

June 4, 1992

Solving the Federal Spending Crisis with a Balanced BudgetAmendment

By


(Archived document, may contain errors)

899 June 4,1992 SOLVING THE FEDERAL SPENDING CRISIS WITH A BALANCED BUDGET AMENDMENT Daniel J. Mitchell John M. Olin Fellow INTRODUCTION Congress soon will vote on an amendment to the Constitution Equiring that the fed d governm ent balance its budget each year. Unlike previous efforts to enact such an unendment, which failed to gain approval in Congress, supporters tue confident that hey have the two-thirds majority support needed in each chamber to send an amend nent to the sta tes for ratification.

Opinion polls over the past decade have found that the overwhelming majority of 4mericans favor a balanced budget amendment as a means of controlling the size of he federal government. Yet this goal will not necessarily be achieved un less the unendment explicitly restricts government spending. If the amendment only requires a danced budget, lawmakers could evade tough decisions on spending priorities by aising taxes. Firm language either limiting taxes or capping total spending thus i s ieeded to guarantee that a balanced budget reQuirement does not degenerate into an innual excuse to raise taxes.

A balanced budget amendment will improve Americas economic performance only d the amendment results in smaller government. A well-crafted bal anced budget unendment, one that farces lawmakers to restrain the growth of federal spending, will reduce the amount of the economys output taken by government. By leaving mm re sources in the productive, private sector of the economy, a properly written balanced budget amendment will stimulate job creation and raise living standards for Americans.

There iue two ways of crafting such an amendment Option #1: The amendment can specify a limit on total federal spending as a per centage of gross national product (GNP House Joint Resolution 143, bo dud by Representative Jon Kyl, the Arizona Republican, c ontains such a pro vision. Unlike a simple balanced budget amendment, an amendment with a spending limit removes the incentive to increase taxes, since additional reve nues could not be used to raise spending above the constitutional limit.

Option #2: A balanced budget amendment can include a tax limitation provision.

Senate Joint Resolution 182, proposed by Robert Kasten, the Wisconsin Repub lican, and House Joint Resolution 248, sponsored by Representative Joe Barton the Texas Republican, and Representat ive Billy Tauzin, the Louisiana Demo crat, both contain language requiring a *-fifths supermajority in each chamber to raise taxes. Under this option, the extra votes needed to raise taxes combined with the balanced budget requirement, would in practice f arce Con gress to exercise greater control on federal spending.

Unfortunately, the proposed balancedbudget amendments with the most co-spon sors in each House of Congress do not include such provisions to control the amount of federal spending. House Joint Resolution 290, sponsored by Charles Stenholm, the Texas Democrat, and Senate Joint Resolution 18, sponsored by Paul Simon, the Illinois Democrat, each lacks effective tax or spending control language.

Nevertheless, even a watered-down amendment, such as those authored by Sten holm and Simon, would be better than no balanced budget amendment at all. If politi cians sought to raise taxes as the way to comply with the amendment, as likely would happen under the Stenholm and Simon versions, opposition from American taxpayers probably would mate a hostile atmosphere to tax hikes and farce lawmakers to take action to trim at least some of the fat from the federal budget and to set more accept able spending priorities.

Anything short of a constitutional amendme nt is not likely to succeed in solving the federal spending crisis. Even legislation which restricts the growth of federal spending such as the 1985 Gramm-Rudman-Hollings Deficit Reduction Act, proved imperfect since Congress has the authority to repeal l e gislation when it restricts their appetite for more spending. Only an amendment provides the ironclad discipline needed to imp fiscal responsibility WHY CONSTITUTIONAL REFORM IS NEEDED The fiscal year 1992 federal budget is a record $1.475 trillion. Nearl y $400 billion of this is to be financed by government borrowing, up from $150 billion as recently as 19

89. The combination of record spending and record deficits underscores the need for a strong balanced budget amendment. Federal lawmakers have demonstr ated year after year that despite all their promises, they are unwilling or unable to resist demands for more spending from special interest groups.

The last time the federal budget was in balance was 19

69. Since that year, deficit spending has added $2 .8 trillion to Americas national debt, accounting for nearly 90 percent of todays total debt 1 The publicly held debt is the most appmpnate measure of how much federal barrowing affects the economy.lhis repnsents the accumulation of past deficit spending, and will exceed $3 trillion by the end of 1992, according to Office of Management and Budget estimates. The gross federal debt, which includes government debt in federel government accounts such as the Social Security Trust Fund, is projected to reach $4 trillion before the year is over.

The additional $1 aillion figure is simply money the government owes itself under the bookkeeping schemes set up for various pension and trust fund accounts.This figure has Little economic significance beyond representing such 2 Twenty-three years of deficit spending are responsible for about $180 billion of the nearly $200 billion in interest payments that will be paid this year on the national debt.

And while opponents 3f a balanced budget mendment say the na tional debt is of little importance, that it is simply money we owe urselves, interest pay ments this year on the national debt will mount to more than 3,300 for every fam ily of four in America cit spending places a fmancial burden upon future generations. It is th e children and EVW dollar of defi Chart 1 Annual Federal Deficits: 1970-1992 Bllllonr of Curnnt Dollar8 6300 8200 100 80 1870 1872 1874 1878 1878 1880 1882 1884 1888 1888 1880 1892 lob: Oat8 are for flacal years. 1882 flgure aatimated. A Prealdant'a CudW r ecord atar1a with the flaonl year following hia Inauguration. The budpet for FY 1881. for example ma aigned by President Carter in the lall of 1880.

Ooumm Budget of the US. Gowrnment. FY 19

93. Haritrgo DilaChirt grandchildren of today's taxpayers who wil l bear the burden for this profligacy, just as the $200 billion of net interest payments in this year's budget are the price Americans are paying for excessive federal spending in the past. As long as deficits grow un checked, interest payments will consu me ever growing percentages of future budgets a burden that will be borne by tomarrow's taxpayers.

While faimess to future generations should be a sufficient argumen t against deficit spending, there is a more immediate Teason to balance the budget. The ability to en gage in deficit spending, and thus pass on the cost of programs to future generations Chart 2 Federal Interest Payments on the National Debt Bllllonr of C urrent Dollur aUows lawmakers to spend mm money which means dollars are denied to the private sec tor. And just as taxes re duce economic growth by reducing incentives to produce goods and mate jobs, government borrowing dampens eco nomic growth by forc i n g interest rates up slightly and supplanting the borrowing desires of consumers, homeown ers, and investors. A bal anced budget amend 8200 160 8100 660 80 9 1070 1972 974 1876 1976 (880 1882 1884 1888 1888 980 -2 Nota: Oat8 are for flacai yaara. 1992 figu re retimatad Bourn BWat of tho US. Oolrernmsnt, FY 19

99. Harlhgo ht&M things as excess Social Security revenues that already have been spent on other government programs 3' ment halts this pattern. An amendment prohibits government barrowing as a means of fmancing government spending, and-assuming there is a constitutional or political brake on new taxes-increases economic growth by reducing the overall burden of federal spending THE GROWING PROBLEM OF DEFICIT SPENDING For much of Americas history, a bala n ced budget amendment would have been an unnecessary additionm-the Constitution. The reason: The federal government operated in deficit only during wars or serious economic downturns. Usually the government ran a budget surplus, as policy makers felt moral l y obliged to pay off debts incurred in the past. Beginning in the mid-l960s, however, this unwritten balanced budget consen sus began to break down. This breakdown was in large part due to the popularity of now-discredited economic theories, especially th a t of the British thinker John Maynard Keynes, which argued that deficit spending was somehow good for the economy-in deed the key to fast economic growth. Politicians understandably seized upon these theories to justify spending programs designed to funne l money to their constituents and to powerful interest groups without the need to raise taxes.

The erosion of fiscal responsibil ity in the 1960s had an immediate impact. Rapidly escalating federal spending on Great Society we1 particularly under Richard N ixon and Gerald Ford soon pushed the deficit to then-q cord levels. In fare programs Chart 3 Federal Deficit as a Share of GDP Percent of Qrnae Domeetlo Prnduot Carter I Reagan I Bush L i 7% i h 6 5 4 3 2 1 0 Qramm-Rudman Llmlta In Elhot 1978 1980 1982 19 8 4 1986 1988 1990 1992 in 1990, the President end Congress uaed accounting glmlcke end unreaiietic Noh: Date ere for llscai yeers. 1992 flgure estlmated bourne: Budget of the US. Gowrnment, FY 1883 economlc eseumptions to exceed the Gramm-Rudmsn Ilmlte Her itage DatmChart deed, as a percentage of gross domestic product (GDP the federal deficit was high in 1975 and 1976 than in all but the first fiscal year of Ronald Reagans second term.

The deficit declined slightly between 1976 and 1979, but propss was brie f. It began to rise sharply once again in the latter years of the Carter Administration, as large in creases in federal spending pushed up federal borrowing. The rising deficit in these years was especially alarming, since the tax burden simultaneously wa s inmasing largely as a result of inflation-induced bracket creep. The surge in federal spending un leashed during the Carter Administration continued into the early Reagan yeam. All told, federal spending jumped from 20.7 percent of GDP in 1979 to 24.4 pe r cent of GDP in 1983 4 In combination with a temporary drop in tax revenue during the 1981-1982 reces sion, this four-year spending expansion pushed the deficit over the $200 billion mark in 1983, consuming what was then a peacetime record of 6.3 percent o f GDP. Once the strong economic expansion of the 1980s began, how ever, the deficit began slowly to shriIkIncreased economic activity and job creation meant higherper sonal and business incomes. This in turnledtorecardin creases in tax collec tions-even th o ugh tax rates were sharply lowered by the Economic Re covery Tax Act en actedin 1981 Chart 4 Federal Spending as a Share of GDP Percent of Qrorr Domertic Product 28% Nixon ord Carter Reagan Bush 1970 1072 1074 1076 1078 1080 1082 1084 1088 1088 1000 1002 Noto: Date are for flacal yeara. 1992 flgure eatlmated.

Bwfc Budnet 01 theUS. Government. FY 1993 The deficit did not fall sharply, however, until the passage of the Gramm-Rudman Hollings Deficit Reduction Act in 1985.2 Gramm-Rudman never worked as well as its supporters hoped-and critics feared-but the growth rate of federal spending was cut by more than half while the law was in effect, even after adjusting for inflation. This mild clampdown on spending paid big dividends in deficit reduction, with red i nk con suming a smaller percentage of GDP in every successive year during Ronald Reagans second term. By Reagans last fiscal year, the budget deficit was down to 3.0 percent of GDP.

Unfortunately, the pgress achieved under Ronald Reagan was quickly undone under George Bush. Adjusted for inflation, domestic spending in the past three years has grown thirteen times faster than it did under Ronald Reagan, and mare than twice as fast as it did under Jimmy Carter. Total federal spending now consumes more than 2 5 percent of Americas gross national product, up sharply hm 22 percent when Reagan left office. The 1990 budget deal, which increased taxes and spending, de serves most of the blame for deteriorating fiscal conditions. The resulting recession meant a dropo f f in tax revenue collections. This slowdown, coupled with the surge of new spending in the 1990 budget agreement, has pushed the 1992 deficit to mm than 399 billion according to Administration estimates. To make matters worse, the only 2 The ky featm of G r amm-Rudman was the Creation of fixed annual defcit targets which became smaller each SucceSSive year until the budget was bdanced. If Congress approved a budget with a projected deficit more than $10 billion above the Gramm-Rudman &kit target, a process c a lled sequestration occurred, automatically reducing the estimated spending levels for that upcoming year by the amount necessary to bring the deficit down to the legally mandated level 5 law which had restrained the budget eficit-the Gramm-Rudman Act-was e mascu lated as part of the 1990 budget deal. 4 CRAFTING A LOOPHOLE-FREE BALANCED BUDGET AMENDMENT The generic problem with a tough law likeGramm- Rudman is that there is nothing to stop a future Congress from repeal ing it. The only perma- nent answer to the federal spending cri sis is a consti tutional amendment.

As with a law, of Chart 5 The Exploding National Debt Trllllons of Current Dollars 3.6 4 I 1910 1972 1914 1976 1978 1980 1982 1984 1986 1988 1990 1992 Not Data ere for flecal years. 1992 flgure eetlmated.

Bouroe Bueger a/ the US. Gowmmenr. FY 18

83. Herltngo Dat.Chart course, an amendment is only as good as its language, and the way that language is in terpreted by the U.S. Supreme Court. Supporters of a balanced budget amendment tend to assume it will force Congress to restrain the growth of federal spending in order to eliminate the deficit. But approval of a weak amendment will not necessarily lead to this result. The reason the budget deficit exists today is that legislators m sub ject to po l itical pressures to increase federal spending. The same political pressures will exist if a balanced budget amendment is ratified, and politicians still will have a means to satiBfy pressure for spending-a hike in taxes. Thus a simple amendment would not necessarily force program reforms and spending cuts, but merely replace borrowing with higher taxes.

The balanced budget amendments introduced by Senator Simon and Representative Stenholm only require that the budget be balanced The Simon and Stenholm amen d ments do not limit spending. They do not preclude massive tax increases. Nor do they force Congress to eliminate useless and outdated pmgrams. Indeed, Representative Leon Panetta, the California Democrat and Chairman of the House Budget Committee 3 Gram m -Rudman was the law of the land for the first fiscal year of the Bush Administration. Unfortunately. OMB Director Richard Dannan and congressional leaders agreed to widespread use of budget gimmicks and dishonest economic assumptions to evade the law's co n trols, a practice not countenanced by James Miller, OMB Director during Reagan's second tenn. In addition to being bad policy, the practice under Bush also made it that much more difficult to reach the deficit target the following year, which stoked up pr e ssure far repeal of Gramm-Rudman 6 already has stated his intention to use the balanced budget amendment to force further tax hikes. Along with Representative David Obey, the Wisconsin Democrat, Panetta has even gone so far as to suggest that an automatic tax hike provision should be added to the congressional budget process HOW REVENUE ESTIMATES COULD DERAIL AN AMENDMENT Another concern in crafting a balanced budget amendment is the method used in Congress to estimate the .revenue.effects of changes in th e tax code. The agencies of the legislative branch responsible for revenue estimates, the Congressional Budget Of fice (CBO) aqd Joint Committee on Taxation (JCT assume in their econometric mod G~S that tax increases and tax cuts have no significant impact on taxpayer behavior. As a result, the projected revenue from any tax increase almost certainly is going to be overstated. And if Congress uses these estimates when trying to comply with a bal anced budget requirement, the potential for crises is high.

The JCT, for instance, was asked in 1988 by Senator Robert Packwood, the Oregon Republican who is the ranking member on the Finance Committee, to estimate the rev enue impact of a 100 percent tax rate on income above $200,0

00. According to the JCT, that wo uld generate $104 billion the first year, and $204 billion the second year with larger amounts each successive year. As Senator Packwood pointed out, this JCI estimate assumes people will work if they have to pay all their money to the Govern ment. They w ill work forever and pay all of the money to the Government, when clearly anyone in their right mind will not.A Yet what if Congress enacted such a tax hike for purposes of balancing the budget?

Congressional revenue estimates systematically exaggerate the revenue gains associ ated with a tax increase and overstate the revenue losses caused by tax rate reductions.

But economic theory and all the evidence show that taxes do alter behavior and thus taxable income. Higher taxes, for instance, reduce incentives to engage in the ece nomic activity being taxed. Depending on how much the incentives are reduced, a tax increase may even cause revenues to fall compared with the amount that would have been raised without the hike. In part be c ause of the tax increase imposed by the 1990 budget agreement, for instance, tax revenues over the 1991-1995 time period will be 483.2 billion lower compared to estimates for the same time period made in the sum mer of 1990-befare taxes were raised. In ot her words, revenues fell approximately 3 for every $1 the agreement was supposed to raise.

Such deeply flawed JCT and CBO revenue estimates contribute to misguided tax and spending policies under the current budget process. But if a balanced budget amendme nt were in effect, the impact of biased revenue estimates would be even mare serious. Imagine a situation, under a balanced budget requirement, in which Congress enacted a taxincrease projected by the JCT to raise $25 billion in order to balance the upcom i ng fiscal years budget. Because of the deficiencies in the JCT model, at some point during the year it would become apparent that revenues were running belowp jections. This would lead to pressure for additional tax inmases to comply with the 4 Congressio n al Record, November 14,1989, p. S 15534 7 REVENUE PROJECTIONS DROPPED SUBSTANTIALLY AFTER 1990 TAX HIKE Billions of Dollars) I Revenue Projections: Before Tax Increase Revenue Projectlons After Tax Increase I Year 1991 1992 1993 1994 1995 I 1121.7 1194.5 1 278.7 1363.1 1441.1 1054.3 1081.0 1168.4 1264.9 1347.3 I Revenue ggLoss" 67.4 113.5 110.3 98.2 93.8 I Sources: Pn-Tax projections from Mid-Session Review of the Budget, Office of Manage ment and Budget, July 1990; Post-Tax projections from Budget of the U n ited States Govern ment, N1993, Office of Management and Budget, January 1992 amendment. But if enacted (rather than spending cuts) the tax hike likely would further depress tax collections because of its impact on the economy. Would Congress simply waive the balanced budget requirement for the year? This probable result of flawed revenue estimates underscores the importance of a tax limitation in any amendment TWO WAYS TO CONTROL FEDERAL SPENDING In order to be truly effective and economically sound, a co nstitutional amendment to balance the budget must restrict the overall size of government. There m two methods to achieve this OPTION #I : Include a Specific Cap on Total Spending.

A limit on total spending is included in House Joint Resolution 143, introd uced by Jon Kyl, the Arizona Republican. Under the Kyl balanced budget amendment federal outlays would be tied to the nation's economic output, with total spending limited to 19 percent of GNP.

Some have charged that the Kyl version is flawed because it w ould give Congress and the Administration an incentive to use grossly optimistic GNP estimates to permit more spending. The Kyl amendment, however, restricts spending in any year to no more than the GNP of the calendar year preceding the new fiscal year. For example when preparing a budget for the 1995 fiscal year, which begins October 1,1994, law makers would have to limit spending to 19 percent of GNP in the 1993 calendar year.

This mandated use of an already determined number would prevent the manipulat ion of economic assumptions feared by critics. Since higher taxes could not be used to in crease spending beyond the levels allowed by the Kyl amendment, the political incen tive to raise taxes would largely disappear. Moreover, since spending increases w o uld be linked to the economy's overall size, politicians actually would have an incentive to encourage economic growth. The faster the economy grows, the more federal spending could increase. Similarly, a shrinking economy would mean less spending 8 OPTIO N #2: Require a Supermajority in Congress to Increase Taxes.

Another way to strengthen a balanced budget amendment is to include a provi sion requiring a three-ffiths supermajority in each chamber to raise taxes. Such a requirement is found in House Joint Resolution 248, a proposed amendment co sponsored by Joe Barton, the Texas Republican, and Billy Tauzin, the Louisiana Democrat, as well as in Senate Joint Resolution 182, sponsored by Robert Kasten, the Wisconsin Republican.

If an amendment only prohibit s deficits, it restricts but one source of revenue namely b-wing, for new federal spending. Lawmakers still could replace govern ment borrowing with higher taxes. While the supermajority requirement does not pre clude tax increases, it does make hikes pol i tically more difficult, and thus would en courage lawmakers to control wasteful spending as the means of complying with the amendment. Congress still would be able to raise taxes, assuming 60 percent of mem bers concurred, but major tax increase proposals have always fallen short of this mark THE REAL GOAL: SHRINKING THE SIZE OF GOVERNMENT In debating the balanced budget amendment, the real issue should be how to curb the total size of government. Regardless of whether government spending is financed by ta x es or borrowing, resources are taken out of the productive sector of the economy and transferred to the government. Federal borrowing certainly imposes economic costs, forcing up interest rates and soaking up credit that could have been used to fi nance e xpansion of the nation's capital stock. But taxes, too, impose economic costs such as reducing incentives to work, save, and invest, thereby lowering economic growth and discouraging job creation.

A properly crafted balanced budget amendment will shrink th e burden of federal spending by forcing programs to compete with each other for less-abundant tax dol lars. If members of Congress wanted to expand Medicaid eligibility, for instance, they might have to reduce subsidies for the National Endowment for the A rts or for trans portation projects. If they wanted to increase funding for AIDS research, it might mean canceling the Superconducting Supercollider. Most Americans believe Congress should be making such difficult decisions, rather than raising taxes in o r der to dodge tough spending choices THE KEYNESIAN RED HERRING Opposition to a balanced budget amendment is driven primarily by interest groups seeking to preserve their access to federal dollars. Realizing that most Americans m hostile to such groups-at l e ast groups of which they are not a member-opponents often cloak their arguments in quasi-economic terms. According to some critics, for in stance, a balanced budget amendment will hurt the economy and needlessly extend 5 The 1990 budget deal, for instance , fell well short of 60 percent in both chambem, receiving 53 percent support in the House and 54 percent in the Senate. Had a supermajority been in effect, the nation's economy would have been spared the largest tax increase in American history 9 economic downturns by preventing the government from using tax and spending poli cies to even out the fluctuations of the economy. Thus, say critics, an amendment would make it illegal for policy makers to use deficit spending to lift the economy out of a recessio n. This view, associated with the school of economics founded by the late John Maynard Keynes, heavily influenced public policy throughout much of the post World War II era.

Many economists, such as Nobel lamates Milton Friedman, Friedrich Hayek, and James Buchanan, have pointed out the inherent flaws of a theory postulating that the economy would benefit if only more resources were put under the control of politi cians and bureaucrats. These theoreticians' objections to Keynesian theory have been borne ou t by the experience of the past thirty years Simultaneous increases in inflation and unemployment during the 1970s, deemed impossible under Keynesian theory helped unde+ine the theory. So did the U.S. economy's record performance after the Reagan tax cuts t ook effect. Keynesians had predicted the tax cuts would be inflation ary under their model, but inflation slowed instead of accelerating. The final nail in the Keynesian coffin is today's economic situation. If deficit spending stimulates the econ omy, as Keynesians argue, the record deficits in the last three years should have been associated with rapid growth. Instead, the U.S. has experienced the slowest period of growth during any administration since Franklin Roosevelt's first term6 CONCLUSION A balan ced budget amendment ideally would include both a specific 'limit on federal spending and a supermajority requirement to raise taxes. Thus crafted, the amendment surely would rein in the growth of federal spending.

Still, for all its shortcomings, even the weak balanced budget amendments offered by Senator Simon and Representative Stenholm would be better than the status quo.

With an amendment in place, Congress still would be farced to enact taxes to 8ccom pany new programs.That would create political cos ts, as the Gramm-Rudman legisla tion did in such a situation, apd thus make new programs less likely. If even a weak balanced budget requirement were in effect, it is reasonable to assume that at least some of any projected deficit gap would be made up fo r by controlling spending.

Today, no such pressure for spending controls exists.

Yet while a weak balanced budget amendment like the Simon or Stenholm versions would be better than nothing, the impact will be much less than supporters expect.The differenc e between a weak amendment and one with tax limitations would be pm found. With a weak amendment, the only thing standing between the economy and a repeat of the 1990 budget deal is the political judgment of lawmakers. Under a tax lim itatiodbalanced budg e t amendment, however, taxes as well as barrowing would be R stricted, leaving lawmakers with no choice but to hold down spending. If history is any guide, the best balanced budget amendment is the one that would leave lawmakers with as little discretion a s possible I I 6 Regrettably the Bush Adminsmtion has resarted to Keynesian economics to justZy its 1993 budget request. For further information, see "The New Voodoo by Daniel J. Mitchell, Reuson, May 1992 10 APPENDIX I Highlights of Proposed Balanced Budg e t Amendments Senate Joint Resolution 18 Proposed by Senator Paul Simon Weak Senate Version Section 1. Total outlays of the United States for any fiscal year shall not exceed total receipts to the United States for that year, unless Congress approves a spe cific excess of outlays over re ceipts by three-fifths of the whole number of each House on a rollcall vote budget for the United States Government for that year in which total outlays do not exceed total receipts.

Section

3. Any bill to increase revenue shall become law only if approved by a majority of the whole number of each House by a rollcall vote, unless such a bill is approved by unanimous consent declaration of war is in effect is engaged in military conflict which ca u ses imminent and serious military threat to national security and is so declared by a joint resolution, adopted by a majority of the whole number of each House of Congress, which becomes law derived from borrowing. Total outlays shall include all outlays of the United States except those for repayment of debt principal.

Section

6. This article shall take effect beginning with the second fiscal year beginning after its ratification Section

2. Prior to each fiscq year, the President shall transmit to the Congress a proposed Section

4. The Congress may waive the provisions of this article for any fiscal year in which a The provisions of this article may be waived for any fiscal year in which the United States Section

5. Total receipts shall include all receipts of the United States except those Senate Joint Resolution 182 Proposed by Senator Robert Kasten House Joint Resolution 248 Proposed by Representatives Joe Barton and Billy Tauzin Senate and House Tax Limitation Version Section

1. Prior to each fiscal year, Congress shall adopt a statement of receipts and outlays far such fiscal year in which total outlays are not greater than total receipts. Congress may amend such statement provided revised outlays are not greater than revised receipts. Congre s s may provide in such statement for a specific excess of outlays over receipts by a vote directed solely to that subject in which three-fifths of the whole number of each House agree to such 11 excess. Congress and the President shall ensue that actual ou tlays do not exceed the outlays set forth in such statement.

Section

2. Total receipts for any fiscal year set forth in the statement adopted pursuant to the first section of this Article shall not increase by a rate greater than the rate of increase in national income in the second prior fiscal year, unless a three-fifths majority of the whole number of each House of Congress shall have passed a bill directly solely to approving specific addi tional receipts and such bill has become law.

Section

3. Prior to each fiscal year, the President shall transmit to Congress a proposed statement of receipts and outlays for such fiscal year consistent with the provisions of this Article.

Section

4. Congress may waive the provisions of this Article for any fiscal year in which a decla ration of war is in effect.

Section

5. Total receipts shall include all receipts of the United States except those derived from barrowing and total outlays shall include all outlays of the United States e xcept those for the repayment of debt principal ning after the ratification of this Article shall become a permanent limit on such debt and there shall be no increase in such amount unless three-fifths of the whole number of each House of Congress shall h ave passed a bill approving such inciease and such bill has become law Section

6. The amount of Federal public debt as of the first day of the second fiscal year begin Section

7. Congress shall enfoxce and implement this Article by appropriate legislation.

Section

8. This Article shall take effect for the fiscal year 1997 or for the second fiscal year begin ning after its ratification, whichever is later House Joint Resolution 143 Proposed by Representative Jon Kyi Spending Cap, House Version Section

1. Except as provided in this article, expenditures of the United States Government for Section

2. Except as provided in this article, the expendims of the United States Government for any fiscal year shall not exceed its revenues for that fiscal year a fiscal year may not exceed 19 per centum of the Nations gross national product for the last calendar year ending before the beginning of such fiscal year.

Section

3. The Congress may, by law, and subject to article 1, section 7 of the Constitution, pr o vide for suspension of the effect of sections 1 and 2 of this article for any fiscal year for which three-fifths of the total membership of each House shall provide, by a rollcall vote, for a specific excess of outlays over estimated revenues.

Section

4. The Congress shall implement and enfoxe this article by appropriate legislation.

Section

5. This article shall apply to the first fiscal year beginning after its ratification and subse quent fiscal years, but not to fisca l years beginning before October 1,1996 12 House Joint Resolution 29 Proposed by Representative Charles Stenholm Weak House Version Section

1. Prior to each fiscal year, the Congress and the President shall agree on an estimate of total receipts for that fiscal year by enactment of a law devoted solely to that subject. Total outlays for that year shall not exceed the level of estimated receipts set forth in such law, un less be-fifths of the whole number of each House of Congress shall provide, by a roll call vote, for a specific excess of outlays over estimated receipts.

Section

2. The limit on the debt of the United States held by the public shall not be increased un less be-fifths of the whole number of each House shall provide by law for such an increase by a rollcall vote.

Section

3. Prior to each fiscal year, the President shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which total outlays do not exceed total receipts.

Section

4. No bill to increase revenue shall become law unless approved by a majority of the whole number of each House by a rollcall vote.

Section

5. The provisions of this article may be waived for any fiscal year in which a declaration of war is in effect.

Section

6. Total receipts'shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Govern ment except for those for repayment of debt principal.

Section

7. This article shall take effect beginning with fiscal year 1995 or with the second fiscal year beginning after its dtification, whichever is later 13 APPENDIX I1 Fiscal Year 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 The Growing Deficit Burden Billions of Dollars Constant Annual Annual 1987 Deficit National Interest Def iclt Deficit %of GDP Debt on Debt 3.2 1 0.5 2.8 8.7 23.0 65.9 23.4 62.6 14.9 37.6 6.1 14.2 53.2 111.9 73.7 144 . 6 53.7 97.2 0.4 278.1 $1 2.7 0.3 283.2 14.4 2.2 303.0 14.8 2.0 322.4 15.5 1.2 340.9 17.3 0.4 343.7 21.4 3.5 394.7 23.2 4.4 477.4 26.7 2.8 549.1 29.9 59.2 99.8 2.7 607.1 35.5 40.2 62.4 1.7 639.8 42.6 73.8 104.0 2.8 709.3 52.5 79.0 101.0 2.7 784.8 68.8 128. 0 152.9 4.1 91 9.2 85.0 207.8 236.8 6.3 1,131.0 89.8 185.4 203.2 5.0 1,300.0 111.1 212.3 224.6 5.3 1,499.4 129.5 221.2 227.3 5.2 1,736.2 136.0 149.8 149.8 3.4 1,888.1 138.7 155.2 149.8 3.2 2,050.3 151.8 153.5 141.9 3.0 2.1 90.3 169.3 220.5 195.4 4.0 2,410. 4 184.2 268.7 228.1 4.8 2,6872 194.5 399.7 329.1 6.8 3,077.3 198.8 Note: A number in (brackets) indicates a surplus. *Estimate Source: Budget of the United States Government, FY7993, Historical Tables, Office of Management and Budget, January 1992 14 The R e lentless Growth of Federal Spending Billions of Dollars Fiscal Year 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985. 1986 1987 1988 1989 1990 1991 1992 Estimate Percent 1987$ Percent Spending as Spending Growth Spendin g Growth Percent of GDP 1 83.6 595.1 1 9.8 195.6 6.5% 597.8 0.5% 19.9 21 0.2 7.5 601 O 0.5 20.0 230.7 9.8 61 8.3 2.9 20.1 245.7 6.5 620.3 0.3 19.2 269.4 9.6 625.4 0.9 19.2 332.3 23.3 698.5 11.7 22.0 371.8 11.9 729.3 4.4 22.1 409.2 10.1 740.9 1.6 21.3 458.7 12.1 773.9 4.5 21.3 503.5 9.8 781.7 1 .o 20.7 590.9 17.4 832.1 6.4 22.3 678.2 14.8 867.7 4.3 22.9 745.8 10.0 891.1 2.7 23.9 808.4 8.4 921.1 3.4 24.4 851.8 5.4 933.5 1.3 23.0 946.4 11.1 1,001.3 7.3 23.8 990.3 4.6 1,017.3 1.6 23.5 1,003.9 1.4 1,003.9 -1.3 2 2 .5 1,064.1 6.0 1,027.1 2.3 22.1 1,144.2 7.5 1,057.9 3.0 22.1 1,251.8 9.4 1,109.4 4.9 22.9 1,323.0 5.7 1,122.9 1.2 23.5 1,475.4 11.5 1,214.7 8.2 25.2 source: Budget of the United States Government, FY7993, Historical Tables, Office of Management and Budget , January 1992 15

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