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Why the Compact's Balanced Budget Amendment is Best.

A basic principle of constitutional amendment design is to make the reform strong but not too strong. One must recognize that the bad actors will always try to beat the system. And there will always be a lot of bad actors involved in government. The trick is designing a reform where the political costs of violating or bypassing the reform will outweigh the benefits of staying within the system as reformed. You can’t straightjacket the system with an iron-clad purist reform because the pressure to break or bypass the system as reformed will be so great that it will never persist. Consequently, the best way to reform the system is to furnish total transparency and strong structural incentives to do the right policies, but also allow for the possibility of losing a few political battles. Also, in crafting any amendment, one must keep in mind the need to secure ratification in 38 states, 10 to 8 of which are significantly purple. This means that any reform must have cross-ideological and cross-partisan appeal. The only reform that is worthwhile is one that can fit these reality constraints while still substantially moving the system in the right direction to be worth the heavy lift of seeking 38 states and simple majorities of Congress (we have 2 states already, by the way).

The Compact's BBA was designed to fit the foregoing parameters. Most people who read it, love it. What people like is the limitation of spending to tax cash flow with the exception of borrowing under a fixed debt limit. People like the power states have to approve any future increase in that debt limit. They like the accountability created by the amendment's impoundment feature, which commands both the president or Congress to start designating impoundments when borrowing reaches 98% of the debt limit. And many folks think the requirement of supermajority approval for any new or increased sales or income taxation, with exceptions for switching to a fair or flat tax, or greater reliance on tariffs, is a great and principled cross-ideological compromise on tax limits.

Concededly, the BBA does not immediately appeal to everyone. Some folks would prefer a spending limit based on a percentage of GDP. But the problem with a locked-down GDP-based spending limit is that GDP is redefined in significant but subtle ways every couple of years. Also, GDP itself is a fuzzy concept to begin with; defining it in a tight or meaningful fashion is impossible for a plausible constitutional amendment. Consequently, the redefinition process will always be controlled directly by the very spending/borrowing addict, namely Congress/President, we need to discipline. The pressure that would be mounted on modifying what counts as GDP to allow for spending would be far greater than the pressure that is mounted on the inflation measures in so many entitlement programs because the stakes would be all encompassing. Every special interest group in Washington would be pushing, not just AARP, for distortions in the definition. Worse, the political distortion of GDP would destroy its value for all policy purposes, much as the redefinition of inflation has, causing less transparency in government policy and action over the long run.

So while we did consider GDP-based concepts, the bottom line is that they (and any other reform that hinges primarily on definitional enforcement within the sole control of Congress/President) are nowhere near as persistent a reform structure as using the time-tested model of balancing ambition against ambition and power against power. Simply put, any reform must be designed to handle a heavy load of bad actors; this means designing the reform to ensure the bad guys counter each other in their ambitions. So we incorporated the division of power and the counterbalancing of interests as the foundational principle of our BBA, much like the Constitution itself.

Additionally, the idea that unlimited debt is not the primary political cause of limitless government is simply wrong. Only unlimited debt makes possible the phenomena of politicians giving the voters everything they want at no immediate cost. This dynamic is what drives overspending and ultimately over-taxation (or default). It is why so many states attempted to limit debt in their constitutions beginning in the mid-19th century. They observed the fact that there is no natural political check to borrowing to the point of system crash by politicians driven by short-term ambitions. Unlimited debt truly is the fairy dust that makes unlimited spending and taxation possible. Create scarcity in debt and the system will be forced to make political choices with immediate political consequences, which will tend (in a society that is still 50%+ rational) to drive policy on spending and taxation in the right direction.

We also do not agree that Congress will simply max out its debt limit and get approval to raise the limit from 26 state legislatures as a routine matter. As a matter of commonsense, statistical likelihood, requiring the assent of both simple majorities of Congress and a simple majority of the States will be more difficult to overcome for increasing debt than just simple majorities of Congress and the president alone. The only question is how much more difficult. Fortunately, we have a real life experiment to point to. At last count 35 states rejected in-state Health Care Exchanges despite federal funding, patronage possibilities, and the possible loss of tax credits for their residents. 24 states rejected Medicaid Expansion which promised overwhelming federal funding and no measurable costs in the short run (the normal mindset of a politician). This experiment in the real world shows the power of grassroots opposition in state capitols. State legislators are and always will be more responsive to grassroots pressure because they are more vulnerable and more dependent on the grassroots to achieve their grand ambitions than the denizens of Washington. So long as the American people support fiscal limits, they will cause the states to be much more tightfisted than Congress. Polling data showing support for limits on debt (not limits on spending by the way, but debt) shows supermajority support persisting for decades. Under these circumstances, there is simply no way that Congress could ever bank on easily getting state referendum approval of an increase in the deb