It is time to confront fiscal failure

It is time to confront fiscal failure
© Getty Images

It has been widely acknowledged that the federal government has lost control of our national finances. Deficits are approaching $1 trillion every year, about 70 percent of the budget is on autopilot, total public debt now exceeds $22 trillion, and total public debt to gross domestic product has almost doubled from 54 percent at the end of calendar 2000 to around 105 percent at the end of calendar 2018, and it continues to rise further.

The truth is that the current budget system is badly broken and needs major reforms. In addition, the Constitution does not provide adequate protections designed to ensure fiscal responsibility and intergenerational equity. Since the beginning of the new millennium, several political and economic figures have stated that we should not be concerned. Recall that former Vice President Cheney said that “deficits do not matter.” In fairness, he may have been speaking politically rather than economically, but it was an irresponsible comment. He also said that the United States would make money on the second war with Iraq. How did that turn out?

More recently, some prominent economists, including Nobel Prize winner Paul Krugman, have espoused a “modern monetary theory.” This theory essentially states that deficits do not matter and assumes the nation can borrow at reasonable interest rates without limit due to our dominant reserve currency status. It assumes that the United States is exempt from the law of prudent finances, and that public and private interests will always have confidence in the United States irrespective of its policies. That is not a prudent or logical assumption. It is also contrary to history.

ADVERTISEMENT

The federal government has been using budget control mechanisms have failed to ensure fiscal prudence and sustainability for the future. As a result, the time has come to make the following budget reforms to promote fiscal sanity, sustainable growth, and intergenerational equity. First, the federal government should move to biennial budgets. After all, Congress has passed timely annual budgets and appropriation bills four times over the past 67 years. That performance deserves a grade of F.

The federal government should adopt separate operational and capital budgets like a vast majority of the states have. The current unified federal budget approach has served to constrain needed infrastructure and other investments that benefit multiple generations while also failing to control mandatory spending. There should be automatic continuing resolutions based on prior year recurring spending if the Congress does not pass an appropriations bill by the start of the fiscal year. Shutdowns are extremely disruptive and are certainly not in the interest of American taxpayers.

The federal government should adopt a “no budget no pay” policy like California. Under this policy, members of Congress would not get paid if all appropriations bills were not passed by the beginning of the fiscal year. The pay for lawmakers would be resumed once all appropriations bills are passed, but there would be no retroactive pay. Members of Congress are responsible for passing annual appropriations bills, and they need to be held accountable and suffer the consequences if they fail to do their jobs.

The debt ceiling should be repealed and replaced with a statutory debt to gross domestic product limit. The current debt ceiling has failed, and the United States is the only major nation that has such a limit. In addition, most industrialized nations focus on debt to gross domestic product as the most appropriate measure of fiscal sustainability. Such a measure would encourage economic growth policies that are fiscally sustainable.

Given the seriousness of our fiscal challenge and the failure of statutory budget control approaches in the past, Congress should pass a federal fiscal responsibility amendment to the Constitution that, among other things, limits debt to gross domestic product to no more than a stated percentage absent a formal declaration of war or a supermajority vote by the Congress. This provision would have to be acted on each fiscal year that the limit would otherwise apply. Violation of this provision should result in no member of Congress being able to campaign for reelection.

If the Congress fails to pass a fiscal responsibility amendment, the states should exercise their power under Article V of the Constitution and do so through a single issue convention. At the moment, there are 28 states of the required 34 states that have already passed the required resolution. The above reforms should help to restore fiscal sanity to our nation over time. They would also help us discharge our stewardship responsibility to our children, our grandchildren, and all future generations of Americans.

David Walker was appointed by President Clinton and served a decade as United States comptroller general. He will be the Admiral William Crowe Chair Professor in Economics at the Naval Academy later this summer.