Freedom Line Blog

Lanny Davis, former special counsel to President Bill Clinton, writes in TheHill that the “Penny Plan” by Rep. Connie Mack (R-FL) is a “simple and creative” way to balance the budget.

…since the “balanced” solution of both increased revenues and spending cuts is supported in virtually every poll by substantial majorities of all voters, including large numbers of Republicans, Democrats need to find a spending cut formula that they can live with. The Mack Penny Plan seems a good place to start — it is simple, it makes common sense, and with some adjustments protecting the poor and the unemployed, it could be seen as fair even to many of the most liberal Democrats.

Ignoring Davis’ call to undermine the elegance of Mack’s Penny Plan by creating vague exceptions for the poor and unemployed – as I wrote recently, the attraction of Mack’s plan is its uniform treatment of all budget items – it’s welcome news that a high-ranking Clintonista can sense good policy when he sees it.

Earlier in his column Davis warned his fellow liberals that it would be “a moral stain on our generation if we leave this red-ink legacy for generations to come to deal with.”

Davis is right.  Let’s hope he urges his fellow Democrats to back Mack’s Penny Plan so we can get on the road to fiscal solvency as soon as possible.

After California Governor Jerry Brown (D) vetoed the legislature’s budget bill, many questioned the definition of a “budget gimmick” since both Brown and the legislature accused the other of using accounting tricks and unrealistic assumptions to balance the state’s budget.

Thankfully, the Arizona Capitol Times has an answer.  Actually, it has five.  Here are the most commonly used gimmicks states employ to meet the technical (i.e. constitutional) requirement to balance their budgets.  (Note: Examples of states doing these are indicated by their two letter abbreviation.)

(1)   Putting off payments – can include delaying or skipping payments to schools and pensions (Ex: IL, MN, NJ)

(2)   Accelerating revenue – this gimmick collects taxes like those on sales early (TX)

(3)   Using temporary money for recurring expenses – spending ‘rainy day’ funds to cut the grass (HI)

(4)   Counting on savings that aren’t likely to materialize – one example is mandating less spending without enacting a specific policy change (CA, CT)

(5)   Counting on revenue that isn’t likely to materialize – such as counting on a federal bailout or stimulus funding that does not appear (NY, CA)

So, there you have it: A five-point B.S. meter for judging the seriousness of your state’s “balanced” budget.

I wonder if the Tea Party is readying state constitutional amendment drives to ban these practices and give their balanced budgets more credibility…

On Tuesday, we told you about the potent case for cutting federal spending being made by Nick Gillespie and Veronique De Rugy over at Reason. Because, as the new omnibus spending bill makes clear, Democrats are congenitally incapable of entertaining the idea of reigning in expenditures, the plan has become the target of criticism for The New Republic’s Jonathan Chait. His response is worth reading, as is Gillespie’s comprehensive rejoinder, but one of his central arguments stands out for its unseriousness:

Another way of putting this [the budget situation] is that, to maintain the current level of services in the federal budget, we would need to spend $5.5 trillion. Gillespie and de Rugy would propose instead to spend $4.2 trillion in 2020. That’s their prerogative. I’m sure they could find at least $1.3 trillion in spending that they don’t like. But the point is that you would have to eliminate a lot of functions of the federal government, and/or reduce a lot of social benefits.

The definition of modern liberalism may be to believe that it would be a hardship for the federal government to get by on over $4 trillion a year. And if budget cuts are a non-starter under this rationale, it’s hard to see when they would be palatable to liberals (how much do you want to bet that national defense is the exception?)

Are we to believe that Mr. Chait is convinced that such bracing austerity would rip the national safety net asunder? And that every activity currently undertaken by the federal government is too sacrosanct to be pruned? There’s a mathematical equation for such worship of the state … and its product is Nancy Pelosi’s approval rating.

The folks over at Reason TV never miss a chance to make complex public policy simultaneously comprehensible and funny (how else to explain their decision to augment Nick Gillespie’s Ian Malcolm look with a chef’s hat?). Take a look at their new video on how to balance the federal budget and then visit the link where they explain their plan in detail. As a comprehensive look at how Congress could get the deficit mess under control without raising taxes, it’s a logical compliment to CFIF’s One More Vote campaign.

So maybe the era of big government really wasn’t over when former President Bill Clinton declared it so.  Jim MacDougald of the Free Enterprise Nation explains that the balanced budget Clinton delivered was the product of a shell game with the Social Security Trust Fund, not a profile in political courage.  From a blog entry discussing the history of Social Security and Medicare:

The federal government recognized that beginning in about 2011 the transfer payment system wouldn’t work. There would be too many recipients of benefits and not enough workers to take money from to pay for it. To avoid the financial catastrophe that loomed ahead, in 1983 the government substantially increased employer and employee contribution requirements to (at least partially) pre-fund for 2011 and thereafter.

Planning ahead for an event that would occur 28 years in the future was a commendable and far-sighted act by our elected officials. “Baby-boomers,” who made up the majority of our workforce, were subsequently “taxed twice,” with matching contributions from employers. One portion of their tax was to pay for those on Social Security who had already retired, the second portion was to pre-fund a part of their own retirement benefits.

Congress took this excess tax revenue and put it in a “trust fund” to pay future benefits. But the trust fund they established was an enormous shell game because the money was treated as general revenues…a huge windfall to the federal government. It enabled President Clinton to announce at a State of the Union address, that the deficit was “exactly zero.” Even today, people are still congratulating Presidents Clinton and H.W. Bush for having balanced budgets and reducing national debt. But Congress had accomplished that feat by taking and spending all of the “excess revenue” that was coming in from payroll taxes for Social Security, and there was a lot of it to spend! From 1983 to 2008, the federal government took $2.5 trillion more than required to pay current Medicare and Social Security recipients, and they “bought Treasuries” with it. In other words, they spent it all.

Now, it makes a lot more sense how the federal government could “balance” the budget so quickly with nary a squeal heard from entrenched interests.  As MacDougald makes clear in the rest of his article, starting next year there are no more games to play.  The 2011 budget for Social Security and Medicare is $1.22 TRILLION – more than all of the federal income taxes paid by all of the workers in America last year.  In order to pay for the payments owed to Baby Boomers (who, as a cohort, begin reaching 65 in 2011), every American worker will have to pay at least $10,000 in new federal taxes every year.

Add this to the cost of ObamaCare and….pass the tryptophan and bring on the food coma.

In an op-ed published today on Foxnews.com, CFIF’s Troy Senik makes the case for a Constitutional Amendment to force Congress to rein in excessive federal spending.  Such a Constitutional Amendment is being pushed as part of CFIF’s “One More Vote” project:

If, as expected, a new generation of economic conservatives join the ranks of the United States Congress in the wake of the upcoming midterm elections, they will face a momentous challenge: how to finally deliver on the promises of fiscal restraint that have so often eluded recent Republican majorities.

To do so, they will need to understand how past congressional failures have set us on the road to reckless spending and how dire the consequences will be if we don’t change paths soon.

In 1995, Congress came within inches of passing a Balanced Budget Amendment.

In that moment, we stood on the precipice of long-term fiscal responsibility. But the amendment failed — by one vote.

Fast-forward to the present and it becomes obvious that the fateful decision not to discipline our spending habits has saddled the nation with an unsustainable economic burden. Since the Balance Budget Amendment failed, our national debt has climbed to more than $13 trillion.

By 2020, the total gross federal debt, including liabilities for Social Security and Medicare,– is anticipated to reach 122 percent of GDP. Even without factoring in entitlement obligations, this will translate to a debt burden of more than $170,000 for every American family. …

Senik goes on to note:

If this trend continues unbroken, the United States will find itself poised for the same kind of decline that has beset nations like Greece and states like California. But there’s still a limited window left for us to stave off disaster.

Any serious approach to our economic travails will have to tackle three issues simultaneously: the need for balanced budgets, the danger of tax increases during a time of recession and the prevention of an expansion of the nation’s debt load. The current national consensus for common-sense budget reforms provides leaders in Washington the impetus and the opportunity to address all three.

What’s needed is a Constitutional Amendment requiring 60 percent of the Senate and House of Representatives to vote in the affirmative for any piece of legislation that increases the debt ceiling, raises current taxes or imposes new taxes. The Constitutional Amendment should also require Congress to pass a balanced federal budget annually.

By embracing balanced budgets, these common-sense reforms embrace the legacy of the original Balanced Budget Amendment campaign of the mid-1990s. But they also recognize that balancing the federal ledger is a necessary, but not sufficient, step to getting our fiscal house in order.

Read Senik’s entire piece here.

Interview with CFIF Senior Fellow Troy Senik on CFIF’s “One More Vote” grassroots campaign to force Washington to balance the federal budget annually without leaving a back door open to tax increases.

Listen to the interview here.