Compact for America Could Restore the Republic – Nick Dranias Responds to Publius Huldah


Editor’s Note: Nick Dranias from the Goldwater Institute has commented on several of the previous articles by Publius Huldah. In the comments section of the previous article, I offered Mr. Dranias the opportunity to speak directly to FreedomOutpost’s audience, and he has graciously agreed to submit this piece. As many of you know, we have done this previously for Michael Farris in an attempt to be fair to both sides, even though there are some of our writers who agree with Mr. Dranias. It is in that spirit that we offer Mr. Dranias’ rebuttal to Publius. Feel free to use the comments section to voice your thoughts.

An anonymous blogger who goes by the name Publius Huldah claims in this article that she has exposed the supposedly “evil” purpose of Compact America’s proposed Balanced Budget Amendment. As I demonstrate below, her article is hyperbolic, false and misleading.

But first, it is important to set the correct standard for evaluating the proposed BBA. In order to succeed in amending the Constitution from the states under Article V, it is necessary to secure ratification from 38 states. This number includes some very purple states. No proposed amendment can return us to the original meaning or structure of the Constitution in one fell swoop and achieve ratification in 38 states. To demand that an amendment do so, is to demand the impossible. Demanding the impossible from the amendment process is just a disguised attempt to foreclose debate over Article V amendments, which I reject.

The reality is that any plausible proposed amendment must find common ground with people on the Center-Right, Center, and Center-Left. At the same time, to be worthwhile, a proposed amendment must also move the ball forward significantly for constitutionalists, as compared to the status quo, to justify the huge effort of pursuing ratification in 38 states.

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That is the standard Compact for America’s proposed BBA was designed to meet. The Compact’s BBA is carefully tailored to find common ground across the ideological spectrum without compromising on any principle that constitutionalists hold dear. Although it is incremental in its scope of reform, the Compact’s BBA is such a substantial improvement over the status quo that it is well worth shouldering the heavy lift of pursuing ratification in 38 states.

PH’s claims to the contrary should be rejected.

PH Claim #1: The Compact’s BBA “has nothing to do with ‘balancing the budget’ – it is about slipping in a new national sales tax or value-added tax in addition to the existing federal income tax.”

Rebuttal: This is a completely false claim. The proposed BBA has everything to do with balancing the budget and limiting the taxing power of the federal government. The proposed BBA would strongly encourage the establishment of a balanced budget by limiting spending in common sense terms: cash-flow-out must match cash-flow-in, with the sole exception of borrowing under a constitutionally-imposed debt limit (section 1). By definition, deficit spending would be limited by a constitutionally-imposed debt limit (section 2). That debt limit would not be in the hands of Washington alone; it could be increased, but only with the approval of a majority of state legislatures (section 3). The amendment avoids a game of chicken over debt limit increases by requiring spending impoundments when borrowing reaches 98 percent of the debt limit (section 4). Finally, the amendment would quell fears of across-the-board tax increases by requiring any new income or sales tax (whether end-user or VAT) to secure two-thirds approval of the whole number of both houses of Congress, excepting measures that close tax loopholes, raise tariffs or fees, or completely replace the income tax with an end-user (not a VAT) sales tax (section 5).

PH Claim #2: “The BBA enshrines Debt as a permanent feature of our Country; gives it constitutional approval . . . and wipes out the ‘enumerated powers’ limitation on the federal government . . . Section 2 accepts debt as a permanent feature of our Country – the “Authorized Debt.”

Rebuttal: This claim is completely false and misleading. Debt is already a permanent feature of our Country—by design. The Founders sadly did not limit the federal government’s capacity to borrow. Fewer than ten years after the ratification of the Constitution, in 1798, Thomas Jefferson observed how unlimited borrowing capacity caused the federal government to grow beyond its enumerated powers and remarked: “I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution. I mean an additional article taking from the federal government the power of borrowing.” The proposed BBA simply adds limitations to the federal government capacity to borrow—limitations that Thomas Jefferson wished-for 216 years ago. It also restores the states to a role in setting national policy, which was taken away by the 17th Amendment. Nothing in the BBA “wipes out” the enumerated powers limitation on the federal government. That is a complete fantasy.

PH Claim #3: The Compact’s BBA “redefines ‘balancing the budget’ to mean spending no more than your income plus the additional debt you incur to finance your spending . . . . Section 1 [of the BBA] says the federal government may not spend more than they take from you in taxes or add to the national debt.”

Rebuttal: This is a completely false claim. Here is what section 1 of the BBA actually says:

“Total outlays of the government of the United States shall not exceed total receipts of the government of the United States at any point in time unless the excess of outlays over receipts is financed exclusively by debt issued in strict conformity with this article.”

As shown above, the Compact’s BBA does not define “balancing the budget” at all. It deliberately avoids such terminology altogether. This is because the BBA is built around a recognition that all political “budgets” consist of projected spending and projected tax receipts, which are easily cooked and gamed. Because political “budgets” are unreliable, the Compact’s BBA avoids any reliance whatsoever on “budgets.” Instead, the BBA strictly limits the federal government to spending only cash from tax receipts or their equivalent, with the sole exception of borrowing under constitutionally-imposed debt limit.

Significantly, the definition of “debt” used in section 6 ensures that the borrowing under the BBA’s debt limit will consist solely of ordinary “full faith and credit” debt under a constitutionally-imposed debt limit. Moreover, the definition of “total receipts” in section 6 of the BBA excludes “proceeds from its [the federal government’s] issuance or incurrence of debt or any type of liability.” This ensures that the BBA’s spending limit cannot be increased by merely minting or printing and depositing new money in the Treasury, raiding cash reserves of trust funds, or creative modes of financing such as sale-leaseback schemes—all of which can happen under the status quo.

This ensures that the federal government must rely upon the private bond market to finance spending beyond tax receipts with transparent, plain vanilla treasury bonds. And there is no guarantee that a manifestly bankrupt federal government will succeed in selling its bonds—just ask Greece or Argentina.

This is a dramatic improvement over the status quo. The Constitution imposes no limit on the amount of spending whatsoever on the federal government. Courts interpreting the Constitution have never completely limited the federal government to its enumerated powers. Leaving this status quo intact, or pining for the day when for the first time in 220 years, the federal court system suddenly starts consistently enforcing the original meaning of the Constitution is absurd.

Furthermore, it is perfectly legitimate to allow for borrowing under a constitutionally-imposed debt limit. Far from deviating from the principles of a balanced budget, the BBA incorporates the discovery that there is no way to have a truly non-gameable “balanced budget,” which requires spending never to exceed taxation, without a “debt cushion” to handle volatility and mismatches from day to day between tax revenues and spending. A revolving line of credit, so to speak, is the price of a definition of a balanced budget that cannot be gamed—and also allows for a transition period away from the status quo of total dependency on limitless borrowing.

Additionally, spending may legitimately need to ramp up quickly beyond tax receipts to address unexpected crises, such as wars. The BBA’s constitutionally-imposed revolving line of credit allows for financial flexibility to deal with genuine crises, with less opportunity for abuse than the status quo.

In short, although the BBA does not completely prohibit the use of debt by the federal government, it does restrict it with a constitutional debt limit. In so doing, it finally imposes the reality of scarce resources on the federal government, which is essential to balancing the budget.

PH Claim #4: “Under the BBA, Congress may continue to spend whatever it likes and incur as much new debt as it pleases – as long as 26 States agree . . . . Section 3 says whenever Congress wants, it may increase the national debt if 26 of the State Legislatures agree.”

Rebuttal: This is a false and misleading claim. First of all, it is a false claim because PH conflates state approval of a proposed increase in the constitutionally-imposed federal debt limit with actually borrowing and spending money. Even if 26 state legislatures approved an increase in the constitutional debt limit under the proposed BBA, Congress would not be able to spend whatever it likes or incur as much new debt as it pleases.

As discussed above, Congress would be limited to borrowing from the private bond market by virtue of the various definitions contained in the proposed BBA (section 6). This excludes all sorts of financial gamesmanship and gimmickry to support spending that would otherwise be allowed under the status quo without the proposed BBA. More importantly, the BBA would impose a powerful nongovernmental check-and-balance on the federal government’s capacity to spend beyond its tax receipts. As Greece and Argentina have discovered, there comes a point when bond markets just won’t buy a bankrupt nation’s bonds. Thus, contrary to PH’s representation, Congress will require the approval of both a majority of state legislatures and the private bond markets to spend more than the federal government’s cash flow from taxes.

Secondly, PH’s claim is misleading because the hurdle of requiring a majority of state legislatures to approve any increase in a constitutionally-imposed federal debt limit would not be insignificant. Securing the approval of 26 state legislatures entails a nationwide campaign requiring the assent of nearly 2000 legislators dispersed around the country. The logistics alone would be vastly more difficult to surmount than the logistics involved in Congress merely lifting (or eliminating) its own statutory debt limit, as is the status quo.

Moreover, Congress does not have an unlimited time to secure state legislative approval of an increase in the debt limit. Section 3 of the BBA imposes a time limit on the approval process: “If such approval is not obtained within sixty (60) calendar days after referral then the measure shall be deemed disapproved and the authorized debt shall thereby remain unchanged.” This deadline would impose on Congress a real sense of scarcity in the availability of debt to support federal spending. That sense of scarcity would strongly encourage Congress to live more within its means than the status quo.

In short, by requiring state legislative approval of any increase in the federal debt above a hard constitutional debt limit, the proposed BBA restores a modest portion of the original power states had to check and balance Washington when the Constitution was originally ratified. Rather than returning the states to their original role wholesale, the BBA prudently targets the state’s renewed engagement in federal policy to a clear problem area, much like we expect a board of directors to intervene in a mismanaged business.

Such outside-the-beltway intervention is essential to fixing the debt. This is because state legislative approval of increases in the federal debt strikes at the root of the problem of runaway federal debt by decentralizing power—eliminating the debtor’s unilateral power to increase its credit limit. Congress will be forced to propose a budget because a specific case will have to be made for debt spending in order to navigate the logistics of securing approval for any increase in debt limit from 26 state legislatures.

PH Claim # 5: “Since the States have become major consumers of federal funding, who doubts that they can’t continue to be bought? Federal grants make up almost 35% of the States’ annual budgets! The States are addicted to federal funds – who thinks they won’t agree to get more money? . . . . No debt limit is set by Section 2! The national debt can be increased at any time if Congress gets 26 State Legislatures to agree. Can 26 States be bought?”

Rebuttal: This is a misleading claim for at least two reasons. First, it fails to recognize that the federal government is far more dependent on federal borrowing than are the States. Federal borrowing is roughly 45 cents of every dollar spent by the federal government. While that means roughly 45% of the federal budget hinges on federal borrowing, it also means that if the average state receives 35% of its annual budget from federal funds, then less than 16% of the average state’s budget originates from federal borrowing. That means the states are far less dependent on federal borrowing than is the federal government. Because of that fact alone, removing unilateral, unlimited borrowing capacity from Congress and transferring ultimate approval authority over the federal debt limit to the states cannot help but slow the rate of federal borrowing.

Moreover, State legislators have rejected federal funds and mandates in the past, including REAL ID (12+ states), Health Care Exchanges (36 states), and Medicaid Expansion (in 23 states). The reason why is that state legislators are earlier in their careers, more accessible to their constituents, and more responsive to their constituents. So long as supermajorities of Americans stand behind limiting the federal debt and federal power, there is a far greater chance that state legislators will advance those policies than Congressmen.

This is because the debate over any increase in the debt limit will be held in locations—state capitols—that are far more accessible to the supermajority of Americans who oppose limitless debt spending. The debate would also take place in a more abstract context— without an immediate connection to the appropriations process—allowing for a more principled debate. Indeed, with state legislatures having the last word over any increase in the federal debt, institutional jealousies would naturally incentivize Congress to avoid the use of debt whenever possible, if only to avoid going hat-in-hand to the states for their permission to do so. As compared to the status quo of limitless debt spending, these dynamics should diminish the abuse of debt. With the states serving as an active board of directors for our wayward federal executive and legislative branch “CEOs,” the Compact’s BBA would powerfully check and balance Washington’s debt addicts. At the very least, the proposed BBA imposes two hurdles in front of any increase in the federal debt, which are obviously more difficult to jump than just one.

Secondly, contrary to PH’s assertion, Congress and the States are not free to wheel and deal on the terms of any debt limit increase under the proposed BBA. The BBA explicitly prohibits quid pro quo trades of state approval of any proposed debt limit increase in exchange for new federal appropriations. Any attempt to do so could render void any approved increase in the debt limit. This will be a powerful incentive for states not to abuse their restored role in national debt policy to demand still more debt spending—far more of an incentive to avoid bad behavior than the states had when they controlled the U.S. Senate under the Constitution’s original design.

Specifically, section 2 of the BBA provides that “authorized debt shall not be increased above its aforesaid initial amount unless such increase is first approved by the legislatures of the several states as provided in Section 3.” This means that the debt limit—i.e. “authorized debt”—remains fixed unless it is increased in accordance with Section 3’s requirement of approval by a majority of state legislatures.

Section 3, in turn, imposes a number of restrictions on the form and manner of the debt approval referendum. The measure issued by Congress must be “an unconditional, single subject measure” and the states must approve the proposed debt limit increase “unconditionally.” This prohibits Congress or the states from earmarking a debt limit increase or explicitly tying such an increase to any explicit proposal or demand.

Additionally, Section 3 states that the approval of the debt limit increase is only effective “provided that no inducement requiring an expenditure or tax levy shall be demanded, offered or accepted as a quid pro quo for such approval.” This prohibits Congress or the states from otherwise trading or threatening fiscal benefits for any debt limit increase.

These prohibitions, if violated, would have the effect not only of casting into doubt the legal effectiveness of any increase in the debt limit that was procured by such violation, but also any resulting debt issuance. This is because Section 4 deems “void” the “issuance or incurrence of any debt in excess of the debt limit set by Section 2.” And if the debt limit set by Section 2 was never lawfully raised, then Section 4 ensures that all debt issued on the basis of an illegal increase in the debt limit will be deemed void. Any state legislator who believed the federal government was attempting to coerce or bribe the states into approving a debt limit increase could write a letter to Moody’s about his concerns, and taint the issuance of any resulting federal debt as potentially unenforceable—which undoubtedly would have an impact on the bond markets. This possibility would strongly incentivize good behavior by both the federal government and the states.

PH Claim # 6: “Who believes Congress will impeach the President for failing to “impound” an appropriation made by Congress?”

Rebuttal: This rhetorical question evidences a failure to consider the political dynamics set up by the proposed BBA. Here is what Section 4 actually says: “Whenever the outstanding debt exceeds 98 percent of the debt limit set by Section 2, the President shall enforce said limit by publicly designating specific expenditures for impoundment in an amount sufficient to ensure outstanding debt shall not exceed the authorized debt. Said impoundment shall become effective thirty (30) days thereafter, unless Congress first designates an alternate impoundment of the same or greater amount by concurrent resolution, which shall become immediately effective. The failure of the President to designate or enforce the required impoundment is an impeachable misdemeanor.”

Here’s how it would work: The BBA would require the President to start designating spending impoundments when spending exceeds 98% of the debt limit. Congress must then override those impoundments with a simple majority vote within 30 days with alternatives if they disagree. This allows for the planned delay of spending to enforce the debt limit at least 6 months before the debt limit is reached (at current spending and borrowing “burn” rates). If the President does not designate impoundments, and if majorities of Congress and the State legislatures do not approve an increase in the federal debt limit or new revenues, spending will be limited to taxes when the debt limit kicks in (section 1), requiring an across-the-board sequester for which the President could be impeached (section 4).

The threat of impeachment would be a powerful incentive for the President to enforce the impoundment process because of what would happen under the Amendment if he did not. If the President did not impound spending in excess of the debt limit when he was required to do so, and if Congress did not repeal the underlying appropriations, that would mean that when the available credit was exhausted, all spending would be limited to incoming tax receipts. Because we are borrowing nearly 45 cents on every dollar spent, that would mean that the President’s failure to utilize the transparent, orderly impoundment process would result in massive sequester or chaotic on-the-fly impoundments because of the lack of adequate money to pay appropriations.

Such irresponsibility by the President would be punished by Congress through the impeachment process because otherwise the blame would fall on Congress for excessively appropriating in the first place. Thus, to ensure the buck remained with the President, Congress would have a powerful political incentive to impeach the President. Notice that the President’s failure to enforce his impoundment obligation would be known by all several months before the debt limit was hit. This would give Congress plenty of time to initiate impeachment proceedings, if they so wished, before the debt limit was reached. The charges, of course, could be withdrawn if the tough choices on fixing the deficit were made, and while the threat of impeachment existed, it would provide a clarifying framework for the President in any budget negotiations.

PH Claim #7: The BBA “authorizes a new national tax.”

Rebuttal: This is a completely false statement. The BBA only limits taxation, it does not authorize a new national tax of any kind. Here is what the first sentence of the tax limitation in section 5 states: “No bill that provides for a new or increased general revenue tax shall become law unless approved by a two-thirds roll call vote of the whole number of each House of Congress.” The term “general revenue tax” is defined by Section 6 as follows: “any income tax, sales tax, or value-added tax levied by the government of the United States excluding imposts and duties.” Taken together, the first sentence of section 5 clearly says that two-thirds of the whole number of each House of Congress must approve any new or increased income tax, sales tax or value-added tax. This is a higher hurdle than the mere simple majority of a quorum that is currently required for a new or increased income tax, sales tax or value added tax. Indeed, requiring two-thirds of the whole number of each House of Congress is even a higher hurdle than is required for Congress to propose a constitutional amendment (which is two-thirds of a quorum, not two-thirds of the whole number of each House of Congress). Thus, PH’s claim is completely obliterated by a plain reading of the first sentence of Section 5.

The second sentence affords PH no support either; it says: “However, this requirement [two-thirds vote] shall not apply to any bill that provides for a new end user sales tax which would completely replace every existing income tax levied by the government of the United States; or for the reduction or elimination of an exemption, deduction, or credit allowed under an existing general revenue tax.” This caveat preserves the current requirement of a simple majority of a quorum approval for a tax bill that would: (a) completely replace all income taxes with an end-user (non-VAT) sales tax; or (b) close tax credits, deductions and exemptions in any existing income tax, sales tax, or VAT. Nothing in the foregoing language authorizes a new tax under easier terms than already exist under the status quo. While new revenues though these exceptions from the two-thirds vote requirement would certainly be possible with simple majority approval of a quorum of each House of Congress (the same hurdle required right now), the debate would be driven through narrow channels where special interest push-back would tend to be most intense, and where the outcome of any successful drive for new revenues would tend to result in a flatter income tax, or a fairer, more voluntary, more consumption-based tax system. In other words, the BBA would powerfully incentivize spending reductions or better tax policy as the primary means of closing a deficit. It simply does not authorize a new national tax.

In conclusion, PH’s assessment of the Compact’s proposed BBA is completely fallacious. Concededly, the proposed BBA is not perfect. It will not immediately return us to a mythical time of complete fiscal responsibility in which the Constitution’s original meaning or structure was strictly enforced (a time that has never existed, by the way). But it is unreasonable to expect any plausible proposed amendment to meet such a standard. To demand that it do so, is nothing more than an effort to frame the debate in such a way as to foreclose the pursuit of any constitutional amendment.

That is probably PH’s real goal. The lack of sound reasoning underlying her assessment of the Compact’s proposed BBA suggests her critique is a mere proxy for her wider war on states using the Article V convention process to advance amendments. Indeed, her more recent blog posts even go so far as to suggest that there is no point to constitutional amendments because the federal government doesn’t follow the existing Constitution.

But if one studies history, one will see that even if the federal government doesn’t obey all of the Constitution all of the time, it does obey most of it most of the time (or at least some of it, some of the time). Need examples? Term limits for the President. Direct popular election for the Senate. The origination of appropriation bills in the House. Each House of Congress setting its own rules. Political free speech and association (for the most part since Citizens United). Right to bear handguns, if not guns generally (since Heller/MacDonald).

Notice, however, that the willingness of the federal government to respect the Constitution waxes and wanes and is a constant game of tug of war. This was true from the very beginning. Barely ten years after ratification, President Adams and the Federalists passed the Alien and Sedition Acts and tried to imprison Jefferson and others like him for free political speech. The truth of the matter is that the Constitution is not and never has been completely enforced, at best it has been mostly enforced, at worst it has been mostly ignored, but the Constitution has never, ever been totally irrelevant.

So the question should really be, given that the Constitution is relevant and either mostly or sometimes enforced, although not foolproof and ironclad, how will an Amendment like the Compact’s proposed BBA do any good?

Here’s how: Amendments set very important boundary lines for political conduct. It gives immediate moral high ground to the constitutional side, and it forces the opponents of the Constitution to wait for extreme situations, sneaky tactics, or pure political muscle to override it. It is a clear political advantage for the extreme progressive Left, for example, to have the 16th Amendment (income tax) and the 17th Amendment (direct election of senators) in place. It is a clear political advantage for gun rights advocates to have the 2nd Amendment in place. These amendments, and others, set the stage for who is right and who is wrong in the political debate. They skew that debate in their favor, if nothing else. And if you add to the advantage politically, an occasional or frequent willingness of courts, congress and the President to enforce those amendments, then you get an overall huge advantage politically.

In the final analysis, there is nothing more important to winning the political game than control over the rules of the political game, even if those rules are breached! That’s what amendments are. Folks like PH who cede power over amendments to their political opponents will lose the political game.

Fortunately, with the Compact for America approach to Article V amendments, we can finally start taking back the rules of the game.

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