3 Essentials for POTUS Spending Discipline

Spending on Medicare and Medicaid alone will eclipse the historical levels of taxation for our posterity – to 18.2 percent of GDP, the 30-year historical tax average, by 2052 (Source/Congressional Budget Office).

Barack Obama’s lack of budget discipline is characteristic of change that rejects individual energy in favor of collective action in the executive.

“That unity is conducive to energy will not be disputed,” Alexander Hamilton said in The Federalist papers, describing the first ingredient needed for America’s chief executive to achieve discipline with “vigor and expedition.”

So it may be no small coincidence now, when a so-called “super-committee” from Congress has been charged with overseeing the president’s task of preparing guidelines for the federal budget, that Gallup reports a growing number of Americans disapprove of Barack Obama’s weakness in handling of the economy.

Seventy one percent of Americans now disapprove of Obama’s handling of the economy. And more than 75 percent say the economic outlook is getting worse, an increase of more than 20 percent since last year, according to Gallup.

Feeble Executive: Committee Evidence for Another Committee

The evidence in support of a “super-committee” to try compensating for Obama’s lack of spending discipline is clear. The House Budget Committee reports that at $1.6 trillion, Obama’s budget deficit for 2011 is not only a post-World War II record but also 10.9 percent of gross domestic product (GDP) – more than three-and-a-half times the official maximum allowed in the debt-heavy European Union.

But aside from highlighting a lack of discipline, what may be most troubling about the “super-committee” is that a similar idea – another group of counselors to Obama — has already failed, according to the House Budget Committee.

The President’s budget last year called for the creation of a fiscal commission that would develop proposals for tackling the government’s unsustainable deficits and debt. The commission reported its findings in December – and the President’s budget all but ignores them, leading the commission’s Co-Chairman, Erskine B. Bowles, to contend in The Washington Post (14 February 2011) the budget goes “nowhere near where they will have to go to resolve our fiscal nightmare.”

Obama Outspends Tax Revenues

Federal Reserve Chairman Ben Bernanke commented at a recent conference about how Obama’s spending will soon eclipse tax revenues (see above figure).

“Projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy,” said Bernanke, stepping out of his usual role as caretaker of monetary policy to explain the danger of Obama’s fiscal policy spiraling out of control, “show the structural budget gap increasing significantly further over time.”

Balancing the Budget

Bernanke further explained how the goal of federal budget policy should be sustainability through fiscal discipline.

A straightforward way to define fiscal sustainability is as a situation in which the ratio of federal debt to national income is stable or moving down over the longer term. This goal can be attained by bringing spending, excluding interest payments, roughly in line with revenues, or in other words, by approximately balancing the primary budget. Given the sharp run-up in debt over the past few years, it would be reasonable to plan for a period of primary budget surpluses.

Keeping in the spirit of American tradition for energy to influence effective action by the nation’s chief executive, the following are three essentials for budget discipline the president should recommend to Congress as necessary and expedient:

(1)    Restore Presidential Impoundment Power — The Congressional Budget and Impoundment Control Act of 1974 took away the president’s traditional ability to impound, or withhold, government spending. The tradition was created by President Thomas Jefferson in 1801, when he refused to spend money unnecessarily in his effort to reduce the national debt.

(2)    Eliminate Baseline Budgeting — The 1974 Budget Act also required preparation of baselines, five-year forecasts that predict changes in spending as a result of inflation and workload adjustments assuming policy remains unchanged. “Baseline budgeting is one of the most sinister ways that politicians claim to cut spending when they are actually increasing spending,” Citizens Against Government Waste explain.

For example, if an agency’s budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds, and taking credit for losing 25 pounds.

(3)    Require Supermajority for Tax Increases –  This is the cornerstone and most needed element of the joint resolution introduced to Congress by Senator Mitch McConnell for budget discipline, to prohibit “any bill from becoming law that imposes a new tax or increases the statutory rate of any tax or the aggregate amount of revenue, unless approved by a two-thirds roll call vote of each chamber.”

Get Back to Basics of Tradition

With such essentials based on Hamilton’s ethic – not for change that delegates the chief executive’s work to committee or commission but for meaningful results through unity – Americans could see the federal government achieve budget discipline.

And as explained by Fed Chairman Bernanke, we also know such budget discipline would begin solving our biggest problem with money, due to demographic change dividing generations, and let us get back to our traditional basics of securing the blessings of liberty to ourselves and our posterity.

References

Peter F. Drucker, The Effective Executive (New York: HarperCollins, 1996).

Frederick R. Lynch, One Nation under AARP: The Fight over, Medicare, Social Security, and America’s Future (Berkeley: University of California Press, 2011).

Review & Outlook, “GOP Balancing Act,” The Wall Street Journal, July 19, 2011,.

Roy T. Meyers, ed., Handbook of Government Budgeting (San Francisco: Jossey-Bass, 1999).

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