Slow Federal Spending and Stop Debt with the Niskanen Amendment

While the Obama administration lectures Europe about the latter’s fiscal policies, Washington continues to run deficits. The problem is bipartisan. When George W. Bush took office, the national debt was $5.8 trillion. When Barack Obama took over, it was $11.9 trillion. Now it is $18.2 trillion.

These numbers will look like the “good ole’ days” when the entitlement tsunami hits in coming years. Economist Laurence Kotlikoff figures total unfunded liabilities today run about $200 trillion.

It long has been obvious that the American political system is biased toward spending. Public choice economics explains how government agencies have interests and why spending lobbies so often prevail over the public.

Congress demonstrates a “culture of spending” in which members tend to back higher expenditures the longer they serve. Washington richly rewards legislators for “growing” in office and joining the bipartisan Big Government coalition.

Some analysts still hope that electing the “right people” will fix the system. But without creating some institutional barriers to political plunder the system will continue to produce the same overall results, despite slight differences in exactly how much is spent on whom and when.

The late William Niskanen proposed a measure that was simple and impossible to game. Niskanen, acting Chairman of the Council of Economic Advisers under President Ronald Reagan, left that position to become Chairman of the Cato Institute.

Two decades ago Niskanen proposed a simple 125-word amendment requiring a three-fifths vote to increase the debt limit or raise taxes and federal compensation to states and localities for any mandates. These provisions would be suspended in the event of a declaration of war. “Nothing has changed in the interim to render Niskanen’s proposal obsolete or impractical,” noted Lawrence Hunter of the Social Security Institute in a new study for the Carleson Center for Welfare Reform.

The measure would put taxing and borrowing on a level playing field, eliminating the current bias for piling up debt. Moreover, the three-fifths requirement would make it easier for legislators to reconsider outlays than to collect more money to waste. This would create a useful corrective for the pervasive pro-spending bias built into the system today.

However, it has become evident that the Senate filibuster, with a three-fifths rule, has proved to be only a limited impediment to the growth of government. Thus, the required super-majority should be two-thirds. Wrote Hunter, experience makes clear that the three-fifths requirement is “not sufficiently stringent to overcome the enormous bias in the legislative process.”

Moreover, Hunter noted that Congress has subverted the debt limit by effectively setting a floating number “suspended” to accommodate whatever amount Congress ends up spending. Thus, he proposed that the Niskanen Amendment be updated to explicitly restrict any suspension to no more than 30 days per Congress, and require the same super-majority vote to suspend the limit.

Finally, Hunter proposed prioritizing spending in the event that borrowing hits the debt ceiling. Hunter would set repayment of the national debt, both principal and interest, as the top priority to eliminate any possibility of default. Then Washington would repay Social Security recipients to prevent big spenders from threatening retirees’ livelihoods.

Congress must again address the debt limit by the Ides of March. It would be a good time to push the Niskanen Amendment. Equally important, any debt increase should include language prioritizing payments with existing funds. Let President Barack Obama threaten to veto a debt measure because it includes language requiring him to pay the most important claims first.

While it would be hard to reject a debt limit increase for spending already approved, congressional Republicans should begin preparing for the next debt fight. As I point out in American Spectator online: “The only hope for reducing the growth in federal debt is to create institutional barriers to its growth. Otherwise the red ink likely will rise until Uncle Sam is both insolvent and bankrupt.”