In the 1964 movie classic Goldfinger, James Bond is chained to an atomic bomb and only defusing it in the nick of time saves his life, so 007 can live to fight another day. The Democrat leadership in Washington is chaining future generations of Americans to a fiscal bomb that threatens this nation’s greatness. Instead of hastening our demise, we need leaders courageous enough to defuse the bomb.
Three House Republicans have a good idea, but before we talk of defusing the bomb, we need to understand how it has been put together.
For more than 60 years since the end of World War II, spending by the federal government averaged about 20 percent of the nation’s GDP (gross domestic product). It was also a period of unparalleled economic expansion and innovation. The United States became the world’s only economic and military super power. Given current trends, however, the future of America’s dominance and particularly her economic health is uncertain.
As a percentage of GDP, current federal government spending catapulted to 24.7 percent in 2009 and the Congressional Budget Office (CBO) predicts it will remain over 24 percent in 2010 and 2011 – significantly higher than any year since World War II. Most troubling is that future projections by both the White House and the Congressional Budget Office (CBO) predict the government’s chunk of the total economy to steadily increase to 40 percent by the time a child born today is in the middle of their earning career.
For the 62 budget years following World War II (1947-2008), annual federal deficits have averaged 1.45 percent of GDP. In order to maintain sustainable economic growth and stability, economists generally agree that budget deficits must remain below 3 percent. It is no wonder, then, that with responsible fiscal policy from government, the post-war era was one of enormous economic expansion and wealth creation in America.
During the more recent 28 year period of 1981-2008 (Reagan, Bush 41, Clinton, Bush 43) deficits averaged 2.48 percent of GDP, evidence of the commonly held perception of an era of growth in government, but still manageable according to macro-economic experts.
George W. Bush inherited a budget surplus for his first year, 2001, but he also inherited a recession in progress and then the economic devastation from the 9/11 attacks, and the subsequent cost of the war on terror. Still, the average deficit for his eight years in office was 2.28%; also under the threshold for concern.
In 2009, as Bush left office and Barack Obama moved in, the reality of another recession pulled at the budget in opposite directions. As tax revenues plummeted, Obama and the Democrat leadership appropriated unprecedented amounts for additional spending. In his first year in office, Obama racked up a deficit of $1.4 trillion, three times greater than any in history. The deficit alone represented 9.9 percent of GDP, dwarfing by nearly 2X any deficit since 1900, other than war budgets during World Wars I and II. The total debt held by the public soared in 2009 from 40 percent of GDP to 53%. The GAO projects debt-to-GDP will exceed 100 percent before the end of the decade.
Obama insists all this deficit spending “rescued our economy from catastrophe.” He must really believe it, because in 2010 he’s picking up the pace. The deficit for the first five monthsof FY 2010 exceeds the previous year by 10.5 percent, right on schedule to achieve the dubious distinction of meeting the $1.6 trillion deficit estimated by the White House.
Obama has made passing references to reducing wasteful spending and restoring fiscal responsibility. "In the long run we can't continue to spend as if deficits don't have consequences, as if waste doesn't matter, as if the hard earned tax dollars of the American people can be treated like monopoly money,” he said December 21, 2009. “That's what we've seen time and time again, Washington has become more concerned about the next election than the next generation."
If Obama has had an epiphany of fiscal responsibility it’s hard to tell. The non-partisan CBO reports that in addition to another record deficit for 2011, Obama’s newest budget would increase federal debt over the next decade by $9.8 trillion. That’s $1.2 trillion more than the White House wants to admit.
Just about everywhere except at the White House and Capitol Hill, people are sounding the alarm about the rapidly increasing debt. Rudolph G. Penner, Director of the CBO 1983-87, has served on two recent independent commissions to study America’s deteriorating fiscal condition says congress has “no choice” but to deal with the deficit. The question is when. “This will happen as the result of a rational process or a crisis,” predicts Penner.
Promised benefits for Social Security, Medicare, and Medicaid – the three big entitlement programs – increasingly contribute to the pending financial tsunami. Today they consume 9.7% of our GDP, but by 2030 the cost will grow to 14.4 percent. Andrew G. Biggs, resident scholar at the American Enterprise Institute and entitlement program expert, warns that “without reform, a fiscal crisis is inevitable. To balance the budget over the next 25 years would require an immediate and permanent 30 percent increase in all federal taxes.”
The GAO sounded the alarm to Congress that the long-term fiscal outlook is “unsustainable” and within ten years, debt held by the public as a percentage of GDP “is projected to exceed the historical high reached in the aftermath of World War II and grow at a steady rate thereafter.” To return the debt-to-GDP ratio the level of a mere 15 months ago the GAO calculates, “revenue (from taxes) would have to increase by about 47 percent or non-interest spending would have to be reduced by 33 percent.”
Senator Judd Gregg (R-NH), Ranking Member on the Senate Budget Committee and one-time choice for an Obama Cabinet job, told CNN that all this debt “means we’re basically on the path to a banana-republic type of financial situation in this country….You can’t keep throwing debt on top of debt.”
As much as the President wants us to believe that his spending binge is working well, it doesn’t appear that many are buying his spin. Bloomberg’s most recent report of economic confidence indicates the lowest level in ten months. Voter’s approval of Obama’s job performance continues to plunge. A CNN poll found only 1-in-4 believes Obama’s $862 billion “Economic Stimulus” did any good at all for the middle-class.
Unemployment is stuck around 10 percent, with fifteen million Americans out of work, and another 15 million are “underemployed.” The White House’s own projections for job creation(95,000 monthly) in 2010 fall short of the more than 100,000 new people that enter the workforce each month.
Clearly the situation isn’t good, and the policies and agenda of the Democrats are chaining generations of Americans to come to a fiscal bomb. Enter the trio of real life 007s with a plan to defuse the bomb and restore stability.
Representatives Jeb Hensarling (R-TX), Mike Pence (R-IN), and John Campbell (R-CA) have introduced a proposal to amend the Constitution, the Spending Limit Amendment. The idea is straight forward – to tie government by law to a 20 percent of GDP maximum spending limit.
The key section reads as follows:
“Total annual outlays shall not exceed one-fifth of economic output of the Untied States of America, unless two-thirds of each House of Congress shall provide for a specific increase of outlays above this amount. Total outlays shall include all outlays of the United States government except for repayment of debt principal.”
The next section provides for a waiver of this provision “while a declaration of war is in effect.”
As demonstrated above, 20 percent of GDP sustained the federal government through the greatest 60 years of American history. Government simply cannot continue to devour more of the corpus of the great American economy without crippling, and eventually killing, the giant. This brilliant amendment would force Congress to do what the people expect of them – make the tough choices, force government to be as efficient as the real world must, eliminate duplicitous, unnecessary, wasteful programs, and reform government for long-term stability. When some special interest screams at them, Congress can honestly respond that they are just doing what the law requires.
As an Amendment to the Constitution, the Spending Limit Amendment would need ratification of three-fourths of the legislatures of the fifty states. State politicians accustomed to sustenance provided by Washington will agonize, but risk the wrath of voters if they fail to embrace the Amendment.
Until ratification officially occurs, the GOP and every single Republican candidate would be very wise to adopt the Amendment as a 2010 campaign pledge – “Give us a majority in Congress and we will self impose the Amendment until such time as it is ratified.”
In a very different context, the President’s Chief-of-Staff Rahm Emanuel said, “A crisis is a terrible thing to waste.” Curiously, as the Democrats used the economic crisis as an excuse to press forward with ObamaCare and their big spending, big government, power grabbing agenda, they have created a different crisis of pending financial ruin and awakened an angry electorate.
The massive uprising generally called The Tea Party movement exploded largely in reaction to government excess and a patriotic call to Save the Republic. Scott Brown’s election to the Senate in Massachusetts clearly demonstrated the intense animosity for the Obama agenda among the voters. Democrat pollsters Doug Schoen and Pat Caddell warn their party of “an electoral rout in November” if they continue to follow the Obama agenda with “blind persistence in the face of reality.” But, Republicans must offer much more than “we’re the other guys” to the voters. Voters want and deserve bold action and elected officials who will be held accountable to campaign promises.
The Spending Limit Amendment is a great and necessary idea for America. For a Republican Party looking to re-establish itself as the conservative, fiscally responsible party that can be trusted once again with the reins of government, it is an idea that offers a chance to reconcile with voters that came to believe the GOP had lost its principles.
And, unlike the Democrats, this would be a really appropriate use of “reconciliation.”
