Sen. Mike Lee: The Case for a Balanced Budget

Elisabeth Meinecke

7/21/2011 12:01:00 AM - Elisabeth Meinecke

An exclusive excerpt from Sen. Mike Lee's new book, The Freedom Agenda: Why a Balanced Budget Amendment Is Necessary to Restore Constitutional Government.

"If we take the difficult, time-consuming step of adopting a balanced budget amendment, we need to ensure that it will actually fix the underlying problem and permanently end Congress’s practice of perpetual deficit spending. Crucially, because Congress is likely to resist efforts to restrain its spending authority, an effective balanced budget amendment needs to impose myriad spending restraints that minimize the chance that any restrictions could be circumvented.

"An ideal balanced budget amendment would contain at least five elements. While an amendment containing any of these elements would go a long way toward restoring the federal government’s fiscal responsibility, one containing all five of them would almost certainly resolve our fiscal crisis permanently.

"Element One: Equalize Revenues and Outlays

"The first element would prohibit Congress from spending more during any fiscal year than the federal government “earns” during that year by collecting tax and other revenue. Stated differently, Congress would be required to adhere to a budget each year in which federal outlays do not exceed federal revenue. This is what most people think of when they hear the term “balanced budget amendment,” and it closely resembles how most families, businesses, and state and local governments try to manage their finances. It is time that we demand nothing less from the federal government.

"Unfortunately, such a requirement is far from foolproof. Under almost any practical scenario, this mandate would require Congress to rely on estimates in calculating the federal government’s likely annual revenue (and to a lesser extent, likely outlays) for each fiscal year. Despite the efforts of our country’s best accountants and economists, estimates are likely to be wrong from time to time, and they could also be deliberately manipulated in order to enhance Congress’s spending power. Either way, we’ll need a backup plan. That’s where the other elements come into play.

"Element Two: Spending May Not Exceed a Fixed Percentage of GDP

"The second element would prohibit Congress from spending during any fiscal year more than a fixed percentage of the GDP of the previous calendar year. Although people may disagree on the proper percentage, I would put the figure at 18 percent. Over the last forty years, federal revenue has averaged roughly 18.5 percent of annual GDP, so a constitutional amendment imposing an “18 percent of GDP” limitation would require Congress to live within its long-term means, thereby preventing the inexorable expansion of federal spending relative to the size of the economy. (As of 2011, federal spending amounts to a staggering 25 percent of GDP; to put that in perspective, a century ago, both federal spending and federal revenue stood at just 2 percent.)

"This limitation would stop Congress from manipulating revenue estimates. In fact, such estimates wouldn’t be used at all, since the previous calendar year’s GDP would be calculated before Congress adopted each year’s budget—and that’s a fixed number that could not be gamed after the fact.

"That number could, however, be manipulated beforehand, by changing the data points that have historically been used to calculate GDP. But it would be relatively easy to detect that kind of machination and to identify those responsible for it. Once the data points have been ascertained for a particular year, GDP can accurately and reliably be determined. And given that the GDP figure in question relates to matters of historical fact, it would be difficult to manipulate. ..."