The Liberty Amendments: Restoring the American Republic (10 page)

Four years following ratification of the proposed Spending Amendment, Congress must adopt a final, annual fiscal year budget prior to the start of each fiscal year; keep spending at or under 17.5 percent of the gross domestic product (GDP) each fiscal year, requiring Congress and the executive branch to prioritize appropriations; and balance the federal budget each fiscal year (with a proviso for emergencies), thereby starting to limit the hemorrhaging of spending and debt accumulation passed from one generation to the next.

As the facts make undeniable, the nation is running out of time. Federal fiscal spending in real dollars has increased to unsustainable levels. For
fiscal operations
alone, in 2002, the federal government spent a little over $2 trillion. By 2008, it spent $2.98 trillion. In 2009, federal spending increased to $3.5 trillion. For 2010 and 2011, federal spending was $3.45 and $3.6 trillion, respectively. In 2012, federal spending was $3.79 trillion.
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As a percentage of GDP, federal spending for fiscal operations is historically sky-high. In 2002, federal outlays as a percentage of GDP were 19.1 percent. By 2008, outlays increased to 20.8 percent.
In 2009, they increased to 25.2 percent. For 2010 and 2011, spending as a percentage of GDP was 24.1 percent, respectively. In 2012, outlays accounted for 24.3 percent of GDP.
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Federal deficits for annual fiscal operations have increased astronomically. In 2002, the federal government incurred a budget deficit of $157 billion. In other words, spending on current governmental operations for the year exceeded receipts by $157 billion. By 2008, the budget deficit increased to $458 billion. In 2009, it jumped to a staggeringly high $1.4 trillion. In 2010 and 2011, it reached $1.29 trillion for each year ($2.58 trillion total). For 2012, the federal deficit was $1.32 trillion.
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In May 2013, the Congressional Budget Office (CBO) released information widely touted as good news. The fiscal operating deficit was estimated to be $642 billion, $200 billion less than the CBO had originally projected and 4 percent of GDP. But Keith Hennessey, former director of the U.S. National Economic Council, explained, “Any time you hear a deficit number, compare it to zero, two, and three, and you’ll have a good feel for where we are. A 4 percent deficit for this year is not good; it’s almost twice as high as the historic average, and it’s high enough that our debt will continue to increase faster than our economy will grow.”
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In contrast, while some state governments are horribly managed, many require the enactment of yearly balanced budgets. In 2008, it was reported that governors in forty-four states are required to submit balanced budgets, of which thirty-four are mandated by state constitutions and ten by state statutes. Forty-one states require their legislatures to pass annual balanced budgets, of which thirty-three are compelled by state constitutions and the remaining eight by state statutes.
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However, with increases in yearly federal deficits come increases in the
overall federal debt
. The total federal debt resulting solely from spending on fiscal operations as a percentage of GDP has increased dramatically since 2002. In 2002, this debt as a percentage of GDP was 58.8 percent. By 2008, it rose to 69.7 percent. In 2009, it jumped to 85.2 percent. In 2010 and 2011, debt as a percentage of GDP was 94.2 percent and 98.7 percent, respectively. For 2012, federal debt was 104.8 percent of GDP.
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Consequently, the federal debt is now larger than the entire annual value of all the goods and services produced by the nation’s private sector.

The federal debt in real dollar amounts for fiscal operations has also reached staggering heights. For 2008, the figure was $10.69 trillion; $12.14 trillion in 2009; $13.8 trillion in 2010; $15.22 trillion in 2011; and more than $16.3 trillion in 2012. The federal debt for fiscal operations under the Obama administration has increased almost $6 trillion.
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In 2012, as a result of this massive debt, every taxpayer was on the hook for $111,000, while the average income was about $51,000. And by 2022, the debt from fiscal operating expenses is estimated to exceed $25 trillion.
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Simply making the enormous interest payments on this debt will become overwhelming. “CBO projects that the government’s yearly net interest spending will more than triple between 2011 and 2021 (from $225 billion to $792 billion) and double as a share of GDP (from 1.5 percent to 3.3 percent).” According to the CBO, “large budget deficits and growing debt would reduce national savings, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower the growth of incomes in the United States.”
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None of this takes into consideration the total
unfunded liability
of major entitlement programs, which is absolutely ruinous. The total unfunded liability of Medicare as of 2012 was $42.8 trillion. The program’s trustees concluded that Medicare spending could consume roughly 10.4 percent of GDP in 2086. “Growth of this magnitude, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the federal budget.”
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The total unfunded liability of Social Security as of 2012 was $20.5 trillion. The program’s trustees concluded that “[b]eginning in 2021, annual costs exceed total income, and therefore assets begin to decline . . . at the beginning of 2022.”
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Therefore, total obligations by the federal government—that is,
the accumulated debt from yearly fiscal operations plus the net present value of all unfunded liabilities
—amounted to over $90 trillion in 2012. Moreover, the real yearly deficits, adding together all debt and liabilities, in 2011 and 2012 were about $4.6 trillion and $6.9 trillion, respectively!
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Consequently, for the first time in the nation’s history, the federal government’s credit rating has been downgraded. On August 5, 2011, citing a “negative long-term outlook,” the credit rating agency Standard & Poor’s downgraded the credit rating of the United States government from the highest AAA rating to AA+. It could be lowered again to AA if the rating agency sees “less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period [resulting] in a higher general government debt trajectory.”
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On June 8, 2012, Standard & Poor’s affirmed this gloomy outlook, stating, “The negative outlook reflects our opinion that U.S. sovereign credit risks, primarily political and fiscal, could build to
the point of leading us to lower our AA+ long-term rating by 2014.”
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In 2012, the Government Accountability Office (GAO) issued its own warning. Having conducted a number of reviews of the federal government’s fiscal condition, it reported that the “GAO’s simulations continue to illustrate that the federal government is on an unsustainable long-term fiscal path. In both the Baseline Extended and Alternative simulations, debt held by the public grows as a share of gross domestic product (GDP) over the long term. While the timing and pace of growth varies depending on the assumptions used, neither set of assumptions achieves a sustainable path. . . . ”
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In other words, the nation is facing eventual economic collapse.

In response to these disastrous fiscal and financial policies, the Federal Reserve System (Fed) has aggressively pursued monetary policies that are equally ruinous. When the Fed was established in 1913, its original mission was to ensure a stable monetary system and sound dollar. Today the Fed’s authority extends to “conduct the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices; supervise and regulate banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers; maintain the stability of the financial system and contain systemic risk that may arise in financial markets; provide certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and play a major role in operating and overseeing the nation’s payments systems.”
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This is vast power in the hands of a relatively few governing masterminds—seven members of the board of governors
and five of the twelve Federal Reserve Bank presidents composing the Federal Open Market Committee. They meet every six weeks to vote on monetary policy.

As such, with virtually unencumbered power to manipulate markets, over the last several years the Fed has launched a controversial quantitative easing campaign in which it has monetized trillions of dollars in debt—that is, the Fed creates credit, which is essentially the same as printing money, and uses it to buy federal government bonds, such as Treasury notes and mortgage-backed securities, thereby piling debt upon debt and pumping money into the economy.

The Fed has also held interest rates at historically low levels for years, thereby distorting market behavior and setting the stage for further economic destabilization as interest rates eventually rise—as they must.

In addition, the Fed has stated that it will devalue the dollar by 33 percent over the next twenty years, which will cut the dollar’s value by one-third and drive up prices and costs while reducing the value of savings and investments.
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Further troubling is the Fed’s use of what is dubbed “financial repression,” where private banks are both forced and encouraged, through loosened capital and other regulatory requirements, to buy ever more government debt. As larger and larger bank holdings consist of this debt, it could eventually set off a financial time bomb, should the government renege on its obligations.
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Therefore, rather than ameliorating the consequences of out-of-control fiscal policies, born of political ideology and expediency, the Fed’s monetary manipulations and interventions are facilitating economic chaos, which can easily lead to hyperinflation and the devaluation of the currency, including sky-high
prices and the destruction of wealth; stagflation, including sky-high prices and significant economic contraction; or even deflation and the collapse of prices for goods and services.

It is obvious that few institutions are unaffected by the reckless fiscal policies of the federal government, including the Fed’s reactionary role respecting its monetary responsibilities, which makes imperative the need to impose constitutional limits on the federal government’s spending power. The federal government’s fiscal situation is disastrous and dire, resulting from its boundless intervention in and manipulation of the individual and his environment. The evidence is unequivocal and overwhelming.

In
Democracy in America
, Alexis de Tocqueville warned that ceaseless intervention was a risk for America resulting from the nature of democracy: “In democratic societies . . . there exists an urge to do something even when the goal is not precise, a sort of permanent fever that turns to innovation of every kind. And innovations are almost always costly.”
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•  •  •

The proposed Tax Amendment’s ceiling on income taxes operates in concert with the spending limitations. It is intended to impose rational decision-making on Congress by strengthening the link between spending and taxing within our constitutional construct. Capping the income tax will establish a workable, stable, and predictable taxing environment, which encourages enterprise and economic growth. Moreover, the proposed amendment prevents resort to alternative forms of taxation, such as the value-added tax (VAT), for the objective is to shrink the federal Leviathan and fund only the legitimate and limited functions of the federal government.

It is worth remembering that the Framers debated with great force the federal government’s size and authority. Many predicted that the federal government’s taxing authority, combined with its power to provide for the “general welfare,” might lead eventually to an unbridled, all-powerful national government, dominating the states and the individual. In one of many examples where the Anti-Federalists raised prescient concerns, Robert Yates, aka Brutus, wrote:

It is as absurd to say, that the power of Congress is limited to these general expressions, “to provide for the common safety, and general welfare,” as it would be to say, that it would be limited, had the constitution said they should have power to lay taxes, etc, at will and pleasure. Were this authority given, it might be said, that under it the legislature could not do injustice, or pursue any measures, but such as were calculated to promote the public good, and happiness.
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Yates argued earlier that “[t]he powers of the general legislature extend to every case that is of the least importance—there is nothing valuable to human nature, nothing dear to freemen, but what is within its power. It has authority to make laws which will affect the lives, the liberty, and property of every man in the United States. . . . ”
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He insisted that the limits placed on Congress’s taxing power were insufficient:

[T]he legislature [has] authority to contract debts at [its] discretion; [it is] the sole [judge] of what is necessary to provide
for the common defence, and [it] only [is] to determine what is for the general welfare; this power therefore is neither more nor less, than a power to lay and collect taxes, imposts, and excises, at [its] pleasure; not only the power to lay taxes unlimited, as to the amount [it] may require, but it is perfect and absolute to raise them in any mode [it] please[s].
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However, in
Federalist
41, James Madison dismissed the critics. He noted that some Anti-Federalists had asserted that the taxing power “amount[ed] to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare.” But Madison declared that “the idea of an enumeration of particulars which neither explain nor qualify the general meaning, and can have no other effect than to confound and mislead, is an absurdity. . . . ”
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