Category Archives: Debt and deficits

Can states save the federal government?

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

Common Core cover cutoutThe thing about human nature is that we resist the big change until there’s a crisis, even though we know a crisis is inevitable if we stick with the status quo.

It often takes a diagnosis for us to quit smoking or change our diets. Some alcoholics must lose everything before they’ll finally seek help.

On the other hand, some people do make lifestyle changes before they absolutely must. Can a society do the same?

On March 2, the national debt stood at $18,149,954,531,765.07, according to the U.S. Treasury Department’s website. That’s $57,000 per American.

The government has been in debt since 1835, but the numbers have been soaring lately. It took two centuries to reach $1 trillion in 1980 and then 35 years to add $17 trillion to that.

There have been a few years when the government did not add to the debt, but not many. Debt has been an ever-present part of America’s past – and unfortunately, its foreseeable future. The federal government’s own Congressional Budget Office predicts the debt will increase $7.7 trillion over the next 10 years. The debt then will continue to rise because of the government’s many unfunded promises.

Someday there will be a reckoning. You can’t keep adding debt forever. And yet Washington seems incapable of stopping this train wreck from happening. So can the states do it?

In the State Capitol on Wednesday, the House of Representatives voted to advance the Compact for a Balanced Budget, a national effort to amend the U.S. Constitution. It now goes to the Senate.

The Constitution has been amended 27 times, the first 10 amendments being the Bill of Rights. With each amendment, Congress has initiated the process.

However, under the Constitution’s Article V, the process can be initiated by states instead of Congress. Thirty-four states must agree to a call, Congress must make the call, the delegates must meet to propose amendments, and then 38 states must approve those amendments. It’s never been done before.

The Compact for a Balanced Budget spells out exactly what the convention would do and how it would do it. Delegates would vote for a single amendment saying the government cannot spend more than it collects unless it borrows under a debt limit that can be increased only with approval by state legislatures. It also requires a two-thirds vote by Congress for most tax increases.

The previous day, the House voted against a resolution advancing the Convention of the States, another national effort to amend the Constitution through the Article V process. That effort would let delegates consider a balanced budget amendment but also others that would limit the government’s power and scope. Supporters tried again on Friday and narrowly passed it through the House. It now goes to the Senate as well.

I like the Compact’s approach much better, but I understand why people are opposed to both. A balanced budget amendment could rob Congress of the flexibility it needs in a crisis. It could be ignored. Or it could give the Supreme Court an outsized say in taxing and spending matters. Clearly, the Convention of the States is a conservative movement meant to reduce the size of the federal government, which many Americans don’t really want to do.

Other arguments against the Article V approach are not as persuasive. Some fear a “runaway convention” where delegates make scary changes to the Constitution. That’s hard to imagine. Remember, whatever the convention proposes must then be ratified by 38 states, one at a time. It’s far more likely the process either would produce nothing, or something so watered down as to be meaningless.

Some are opposed to amending the Constitution because they say it is just fine like it is. Thank goodness that argument didn’t carry the day before passage of the 13th Amendment, which abolished slavery, or the 19th, which ensured women have the right to vote.

The framers of the Constitution gave us a wonderful document, but it has become increasingly obvious since 1835 that it contains a flaw: The government has many incentives to create debt without a mechanism to discourage it. Thomas Jefferson recognized that flaw in 1798.

The framers also understood their own imperfections, and humanity’s, as well as the fact that times change. That’s why they made it possible to amend the Constitution, with great difficulty.

They wisely included the Article V provision. Congress can’t always be trusted, so a democratic process was needed to bypass it – before a crisis occurs, preferably.

Is America governable?

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

U.S. Capitol for blogThe American republic has limped past being dysfunctional and stumbled into being ungovernable. Even if you hate the government, this situation should concern you because it means big problems aren’t being addressed, while new ones are being created.

Two current legislative fights illustrate this reality – No Child Left Behind and the broken immigration system.

Congress has yet again stalled on its long overdue reauthorization of No Child Left Behind. That’s bad, because this law is completely unworkable. Signed by President George W. Bush in 2002 and passed with bipartisan support, it required that 100 percent of American students in grades 3-12 test at their grade level by the end of the 2014 school year, or the federal government would punish the schools where they didn’t. That’s every single child, regardless of language difficulty or intellectual challenge – a requirement so ridiculous that Congress ought to fix it, but it can’t. As a result, the Obama administration has been granting waivers to states telling them how they can disobey the law.

The president is supposed to enforce the law, and Congress is supposed to write laws that make sense, right?

The same applies to immigration. The president wants to ignore the laws Congress has passed, and Congress can’t agree on how to fund the Department of Homeland Security in response. Meanwhile, the border remains porous, and millions of people live in the shadows among us. Children brought here by their parents basically have no home country. Meanwhile, the United States quite effectively limits the influx of skilled overseas workers – exactly the people we need.

If these two issues were outliers, we could deal with them. Unfortunately, they’re the norm. A few other examples …

The national debt. Uncle Sam now owes $18 trillion, or the equivalent of $57,000 for each American. The debt has doubled since 2007 and tripled since 2001, and it’s still rising. The only possible solution is to reduce spending substantially while collecting more revenues somehow. There’s not a remote possibility that Republicans and Democrats in Washington will agree to do that.

Health care. Prior to the Obama administration, the United States already had the world’s most expensive health care system. It denied insurance because of pre-existing conditions and stopped paying for patient claims if they became too expensive. Then the Affordable Care Act was rushed through Congress, causing its own problems and leading to who-knows-what. Now the act faces a serious Supreme Court challenge over its wording regarding federal exchange subsidies. Pulling this leg from the stool could cause Obamacare to collapse. Lots of people would be happy about that, but … what’s the plan after that?

Infrastructure. The gas tax, which funds highways, has not been raised at the federal level since 1993. It is destined to produce less and less revenue because cars are becoming more fuel efficient through both market and government demands. Everybody knows the model is unsustainable, but there’s no agreement on its replacement.

It won’t be enough to vote for different people in 2016. Washington simply doesn’t work any more, regardless of who is in office.

That’s because Washington reflects American society, which itself is marked by contradictions and divisions. We simply don’t agree on how to solve problems, or even about what the problems are. We’re deeply divided culturally, morally, about what we want this place to look like, and about what we think it once was. That lack of consensus makes it very hard to solve difficult issues. Moreover, Americans say they don’t trust government but then choose to be profoundly dependent upon it, rarely recognizing the irony. The result is that we grow government without paying for it.

This is a depressing column, so let’s close with solutions. Congressional term limits? A balanced budget amendment? Campaign finance reform? All could help.

Meanwhile, many decisions should be returned to the state level, where democracy still manages to work sometimes. Red, blue and purple states could solve problems in their own ways, often learning from each other. Americans would be free to settle in states where they felt most comfortable.

This could cause its own problems, including irreconcilable legal definitions of discrimination and a race to the bottom on environmental regulations. A poor state like Arkansas might find its niche, or it might just get poorer.

Something big has to happen – bigger than the next election. When a country becomes ungovernable, problems can’t be solved simply by electing different people to that government.

Here’s some hopeful news on the national debt

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

If you’re a person who reads this newspaper section or clicks on this column online, you’re probably aware of the national debt and maybe a little concerned, but you’re not crazy about reading 700 words about it.

I get it. The numbers are mind-boggling and the terms confusing. Could there be any more boring words than “federal budget” and “fiscal responsibility”? We’ve been hearing about this bear in the woods for decades, but he never seems to attack.

But a couple of important things happened this past week – one hopeful, one less so – that are worth noting, so let’s cover them. Bear with me. We’re already at 110 words.

Let’s start with the less hopeful news. The Congressional Budget Office (CBO) released its 10-year projections Monday, which told us what we already knew, which is that the debt is growing unsustainably. Already $18 trillion ($57,000 for every American), the debt is expected to grow to $27.3 trillion by 2025.

Each year, the government runs a deficit that adds more to the debt –about $1 trillion every year during the recession, less so in recent years. In 2014, the government added “only” $483 billon to the debt, and the next three years will be about the same. But then the deficit starts rising. By 2025, the government again will spend more than $1 trillion over what it collects that year.

The CBO reports are typically a good information source, but they are based on some rosy scenarios – for example, that Congress won’t extend tax loopholes that it always extends. Forecasters assume there won’t be a terrorist attack, a natural disaster, or a significant economic downturn between now and 2025. On the other hand, unexpected good things can happen as well, such as the United States’ increasing energy independence.

The CBO projections stop at 2025. The picture does not improve moving forward as the baby boomers age and as spending increases for Social Security and Medicare.

And Medicare is where we get to the hopeful news. The federal Department of Health and Human Services announced this week that it will rely less on the “fee for service” model that has helped create runaway health care costs. Under that model, doctors and hospitals are paid for whatever services they render. They bill, and taxpayers pay, few questions asked, creating an incentive for unnecessary tests and procedures.

In the future, alternative models more often will pay medical providers based on quality of care. This is very hard to do, but it has been tested. Little Rock’s CHI-St. Vincent has been involved in a Medicare pilot program where the hospital and doctors were paid a set amount for joint replacement procedures, and it was up to them to control costs to make a profit. I know we don’t like to think of health care in terms of profits, but the alternative is a government bureaucracy. The result of the pilot program was that patient hospital readmissions after those procedures were reduced by two-thirds. When I asked the hospital’s reform-minded CEO, Peter Banko, why the changes had not been made earlier, he said, honestly defining the problem, “There was no financial incentive to.”

“Until you change how we’re being paid, you’re not going to see changes in the system,” he also said.

At the state level, Arkansas has been involved in a similar effort, the Arkansas Health Care Payment Improvement Initiative, which involves Medicaid, insurance companies and others. As part of the initiative, medical providers have financial incentives to keep costs at certain levels for particular “episodes of care.” One result, according to the Arkansas Center for Health Improvement, is that unnecessary antibiotic prescriptions for certain respiratory infections have decreased 17 percent. Doctors now have a financial incentive not to prescribe medicines that serve no purpose other than making patients feel like something is being done.

These are not perfect solutions. They’re very top-down in a health system that has been becoming increasingly top-down for decades.

But they are hopeful. It is impossible to balance the budget without controlling health care costs. If that could happen, it would be one of those unexpected good things that might mess up CBO’s numbers, in a good way.

Can states fix what Congress messed up?

By Steve Brawner
© 2015 by Steve Brawner Communications, Inc.

Can the usual processes that created the $18 trillion national debt – now more than $57,000 for every American man, woman and child – also be used to pay it down?

If your answer is yes, then I encourage you to check the history books. Almost ever year since the nation was founded, the federal government has added to the national debt, and under current projections, the debt will grow bigger each year, year after year, as far as the eye can see.

It should be clear by now that our nation’s capital will not suddenly see the light of fiscal responsibility, so can anything be done to reverse the slide? Apparently not by Congress, so two separate national movements are attempting to amend the Constitution by employing a never-before-used process led by the states. Under Article 5 of the Constitution, 34 states can call a convention, which would then propose amendments that must be ratified by 38 of them.

One of those efforts, the Convention of the States, proposes an open-ended convention tasked with limiting the powers of the federal government, with suggested amendments that would require a balanced budget, enact term limits, redefine the Constitution’s Commerce Clause, etc. In Arkansas, supporters are considering two versions, according to one of its supporters, Rep. Bob Ballinger, R-Hindsville. He believes at least one will pass.

Nationwide, the effort faces a much steeper climb. The Convention of the States’ goals and its rhetoric are so conservative that it will have a tough time reaching 34 states, let alone 38. Also, the delegates would be free to propose whatever amendments they want, leading to fears of a “runaway convention.” Those fears are unfounded, because any proposed amendments still would require approval by 38 states. But the fear that something crazy might happen has cost the movement some allies.

The other effort, the Compact for a Balanced Budget, also is a long shot but would seem to have a better chance. Unlike the Convention of the States, the Compact proposes a single amendment. The amendment states that the government cannot spend more than it collects unless it borrows under a debt limit that can be increased only with approval by a majority of state legislatures. Also, all future tax increases would have to be passed by a two-thirds vote of Congress, though a majority vote could close loopholes or replace the income tax with a national sales tax.

With the Compact for a Balanced Budget, we know what we’re getting. The states that sign up agree to the wording upfront. The delegates would assemble, vote yes and go home.

Alaska and Georgia have already signed on as members of the Compact. Organizers see Arkansas as one of 30 other states they must have. Then they would have to sway six other states where passage would be harder.

In Arkansas, Rep. Nate Bell, R-Mena, pre-filed a Compact for a Balanced Budget bill before the legislative session began. He was one of the early supporters of the Convention of the States, and although he still favors it, he thinks this is a better way.

I like it, too, and not just because it has a better chance of passing. It creates a mechanism that helps Congress be more fiscally responsible. It gives states the ability to rein in Washington. It makes it hard for Congress to raise taxes, but not impossible, particularly not by closing some of the loopholes that riddle the tax code.

Bell, who is on the Compact for a Balanced Budget’s national board, plans to push his bill, HB1006, later in the session. Will it pass? It depends on a lot of factors. Legislators, including Bell and Ballinger, have a lot on their plates as they consider thousands of bills in three months’ time.

One of those is the Revenue Stabilization Act, passed each session since 1945. Because of that act, Arkansas has a mechanism in place to produce a balanced budget – which is one of the main reasons the state, unlike the federal government, always has one.

Congress: Better, sort of

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

You could say that what Congress accomplished this month was a vast improvement. You also could say it wasn’t nearly good enough.

On Tuesday, President Obama signed a 1,600-page, $1.1 trillion “cromnibus” bill passed by Congress. The “cr” is an abbreviation for “continuing resolution,” which is a short-term funding mechanism that will be used for the Department of Homeland Security. “Omnibus” is the mechanism funding the rest of the discretionary budget – in other words, not entitlement programs such as Social Security and Medicare, which are on autopilot. Homeland Security is funded only until February so Republicans can try to undo Obama’s immigration order.

This is a step forward because Congress finished this task without a government shutdown, though the deadline for one came pretty close again. Next year will be a circus like always, but at least Congress won’t be playing Russian roulette with the economy for a while.

Unfortunately, important provisions were slipped into this spending bill that weren’t related to the budget. One, written by the big bank Citigroup, amends the Dodd-Frank law passed after the bank bailout and will let banks engage in riskier behavior backed by your tax dollars. If they make money, they’ll keep it. If they lose money, you’ll bail them out. Another provision increases the amounts that big donors can give to the Democratic and Republican National Committees tenfold, from $32,400 to $324,000.

Moreover, Congress relied on a few gimmicks to make the numbers work. The Committee for a Responsible Federal Budget, in fact, has found $30 billion it says violate the spirit of the sequester and the 2013 Murray-Ryan agreement. Without going into too much history, the sequester is a series of automatic spending cuts affecting non-entitlement programs. Murray-Ryan set spending caps for two years and raised spending levels above the sequester.

Google it if you need more. It’s hard to write about this stuff.

Thirty billion dollars is less than 3 percent of $1.1 trillion, so again, it’s not too bad. Still, it’s not great. One provision shifted $7 billion from regular defense spending, which is capped under the sequester and Murray-Ryan, to war spending in Iraq and Afghanistan, which is not.

This is one of many reasons why we should be reluctant to fight all these wars.

In addition to the cromnibus, Congress also passed a one-year bill extending 55 tax breaks retroactive to the beginning of 2014. These were deductions for wind energy production, big business foreign profits, schoolteacher supplies, college tuition, etc.

Some of those may be worthy policies, but there are several problems with doing it this way. First, the tax extenders bill reduces revenues to the federal government by $41.6 billion over 10 years – money future taxpayers will have to cover because Congress didn’t also cut $41.6 billon in spending. Next year, the tax breaks probably will be extended again, further adding to the debt. Also, by extending the tax breaks year after year instead of just cutting taxes permanently, Congress can hide how much these actions actually increase the national debt over time.

“It really is no more complicated than me going home and saying to my kids, ‘I’m going to ask you to pay for this $42 billion because we didn’t want to,’” Maya MacGuineas, CRFB president, said in an interview.

Finally, the whole point of a deduction is to encourage behavior. All of these tax breaks expired at the end of 2013. Waiting until the end of the year and then re-enacting them retroactively created uncertainty and made it harder for businesses to make the investments Congress is trying to encourage. If the credits are a win for the economy, then Congress should have extended them through 2015 so beneficiaries could include them in their plans moving forward. Congress did not do that.

Being a member of Congress often means choosing between two options that are less than ideal. For the record, here’s how Arkansas’ members voted on the two bills. On cromnibus, the yeses were Sen. John Boozman, Sen. Mark Pryor, Rep. Tim Griffin, and Rep. Steve Womack. The no votes were Rep. Rick Crawford and Rep. Tom Cotton. On tax extenders, everybody voted yes except Cotton.