America's Fiscal Constitution (68 page)

The cost of two wars and the drop in revenues and employment following the Great Recession of 2008 made it difficult to balance the budget for several years. The prospect of rising interest rates and debt service makes “pay as you go” financing of Medicare even more important today. The increasing cost of medical services has already begun to squeeze out future investments in other domestic programs such as education grants, scientific research, public safety, child nutrition, clean energy, and environmental enforcement. Holes in the safety net of medical services should not be patched with the rope that other Americans rely on to climb toward a better standard of living. Democrats should argue for balancing the budget for Medicare. If Medicare must be cut severely because of Republican opposition to obtaining sufficient tax revenue, voters are likely to rectify that problem in the next election.

Abandoning the traditional limits on debt has compromised the most cherished of all Democratic ideals: a nation in which each generation has opportunities greater than the one that preceded it. That vision guided party leaders who built the world’s first comprehensive system of public and higher education and who removed barriers imposed by racial, gender, and other forms of discrimination. Democratic leaders championed a program that set aside funds to allow older Americans to retire in dignity without leaving their children and grandchildren a pile of unpaid medical bills or federal debt.

Grassroots Democrats strongly believe in affordable education as a ladder providing upward mobility, yet the cost of future debt service shackles the future of the very people who receive that education. Foreign purchasers of federal debt have sustained trade deficits and limited the opportunities of American workers in industries competing with imports. Workers as well as business owners benefit when balanced budgets free more savings for use in direct investment in the economy rather than federal debt.

No nation ever borrowed its way to long-term prosperity. As Democratic vice presidential candidate Lloyd Bentsen noted in his criticism of Republican policies in 1988, anyone “could give the illusion of prosperity” by writing “$200 billion of hot checks every year.”
⁶
Franklin Roosevelt explained in a radio address that “any government, like any family,” could temporarily “spend a little more than it earns. But you and I know a continuation of that habit means the poorhouse.”
⁷

Democrats must accept the fact that a majority of voters may not support the taxes needed to fund certain types of humanitarian programs. Moreover, if 98 percent of voters are unwilling to pay for a new program with higher taxes, then there will be a limit on what can fairly be funded by the 2 percent of Americans with the highest incomes.

Democrats hold a wide variety of opinions on public policy issues, but the party’s reformers should insist on several basic principles that are consistent with their party’s historic traditions. In the absence of war or recession, the federal budget should limit spending to available revenues. Tax rates should be based on the ability to pay. Congress should vote to authorize each new use of debt every time it votes for a debt-financed spending bill.

T
HE
T
IME
I
S
R
IGHT FOR
R
EPUBLICAN
B
UDGET
R
EFORMERS

Between the Civil War and the 1970s no Republican president or congressional majority authorized borrowing a dime to pay for federal expenses except for those directly attributable to wars and downturns. Republican “pay as you go” budgets freed national savings for private investments in long-term economic growth. When Republicans gained control of the House of Representatives in 1947 and 1953, they cut total spending from the level of the prior year in order to balance budgets.

When confronted with a large deficit, President Reagan called on Congress to freeze nondefense spending, raise Social Security tax rates, tax Social Security income for the first time, and impose a new tax equal to 1 percent of national income. Republicans who gained control of Congress in 1995 almost passed a constitutional amendment requiring a balanced budget.

Until relatively recently, conservative Republicans sought to limit the growth of government by insisting that new domestic spending programs
be paid for with higher taxes. “Pay as you go” budgets made the cost of new federal programs clear to voters.

After 2000 Republican voters continued to believe in balanced budgets, but many party leaders followed a different course. A Republican president and Congress used debt to finance tax reduction, an expansion of Medicare, two wars, a higher base military budget apart from war, expanded agricultural assistance programs, and much more. Republican fiscal policy continued to stray from its historic course after George W. Bush left the White House. The 2012 Republican presidential nominee, Mitt Romney, pledged that he would not accept a budget that reduced the deficit by raising a dollar of tax revenue for every ten dollars in spending cuts.
⁸

Some Republican political consultants may think that small-government conservatives have no other place to go. In fact, traditional fiscal conservatives can win Republican primaries and regain control of the party. Republicans who believe in individual responsibility yearn for candidates who will vote against appropriations funded with debt. Debt-financed spending is not conservative. Republican incumbents who have never once voted to appropriate less spending than estimated tax revenues will be hard-pressed to explain why the budget should be balanced in ten to thirty years rather than in two or three years.

President Reagan once noted that doing the right thing is not complicated; it just is not always easy. “Pay as you go” for routine spending is not complicated. Republican reformers in Congress should insist on separate votes on debt-financed appropriations in order to let voters know what debt is used for and which members of Congress voted to incur debt.

The goal of a balanced budget can help focus the Republican approach to Medicare. No mainstream Republican leader supports abolishing Medicare. Republicans have made little headway with their favored plan to limit the cost per beneficiary by requiring that coverage be purchased in the form of subsidized plans offered by private insurers. That and other proposals to limit rising Medicare costs would be more persuasive if they were grounded in the principle that the program should cost no more than available tax revenues. It is better to give taxpayers a greater stake in the efforts to reduce the program’s costs than to complain about “entitlements” that members of Congress in both parties vote annually to fund. It is unrealistic to expect members of Congress in either party to ignore the public’s long-standing support for taxation based on the ability to pay. It is,
however, reasonable to insist that Medicare be paid for with broad-based taxation.

Debt-financed military spending undermines national security. If and when the United States intervenes abroad, the nation’s balance sheet should not be encumbered by an excessive level of peacetime debt. Republican primary voters will gravitate to candidates who embrace those simple truths.

Edmund Burke—the quintessential conservative—once said that constituents deserve the judgment of each elected official. Conservative heroes have often resisted the trend of the moment in order to defend traditional principles. Conservatives may not win every fight to reduce the scope of government. If they lose because most voters are unwilling to reduce the level of federal services and national defense, then Republicans should insist that their opponents be forthright with constituents about the price expressed in taxation. Even when they are in a minority, conservatives will have a greater impact when they defend convictions that have stood the test of time.

A S
ELF
-E
VIDENT
T
RUTH

The United States has incurred high levels of debt five times in its history and then quickly balanced its budget—usually while maintaining surpluses to reduce debt—for a decade or more. It can do so again. The history described in this volume should give heart to voters and candidates who are willing to work for the political changes needed to protect the nation’s future.

Americans today—like those of prior generations—recognize that the use of debt to fund routine spending compromises the prospects of young citizens, the ability to be independent of foreign creditors, and the capacity to use national savings to invest in private sector jobs. Voters are capable of understanding a basic premise of democratic governance: citizens should expect only the level of government services that they are willing to pay for and understand that someone must eventually pay for every public dollar spent.

A
CKNOWLEDGMENTS

I
LEARNED THAT MY
wife, Andrea, a writer, is a splendid editor. My prose is not good enough to fully express my gratitude for her encouragement, edits, and tolerance of rooms in our home filled with obscure books and articles. Shay Everitt worked by my side every day for over two years, organizing sources, deciphering my notes, and correcting my frequent mistakes. Another colleague, Shiju Thomas, devoted hundreds of hours to research. He deserves credit for appendices that include the best available summary of the historical levels of federal debt calculated with consistent accounting.

My friend Michael Zilkha helped me find my excellent agents, Ike Williams and Katherine Flynn, who introduced me to an outstanding publisher, Perseus, and its fine staff. My editor at PublicAffairs, John Mahaney, is a consummate professional. John and Collin Tracy at Perseus and Beth Wright of Trio Bookworks put up with an excessive number of late edits from their author.

Nancy Smith’s review and editing made the first complete draft far more readable and taught me the importance of transitions. This book is in much better form as a result of Virginia Northington’s thoughtful and rigorous copyediting and fact-checking.

Thanks to my friends Scott Atlas, Franci Crane, Becky Ferguson, Elena Marks, Paul Hobby, Rich Kinder, and Carrin Patman for reviewing early chapters. Scott patiently and thoroughly read and commented on drafts for a year. His friendship and support lifted my spirits when the magnitude of this undertaking began to dawn on me.

I am grateful to my colleagues at Lazard. We help senior management, owners, and boards of businesses place their challenges in a broader context. This book was written in the spirit of that culture.

My parents worked hard to try to give me the skills and values needed to write history. My father, who died before the completion of this book, filled my childhood home with great history books. My mother, a longtime English teacher, taught me and so many others the lost art of diagramming sentences. Their lives and those of my grandparents encompassed half of US history to date. Their sacrifices exemplified the values of entire generations who changed world history and paid for public bills with taxes in order to avoid leaving their children with a mountain of debt.

A couple of sources offered insights that helped shape this book’s thesis. Richard Hofstadter’s
The American Political Tradition
illuminated the depth and continuity of currents running through the course of American history. The correspondence of Jefferson and Madison can still inspire citizens who seek a principled basis for making budget choices.

Many residents of Houston, Texas, deserve special thanks. Hundreds of them—from disparate backgrounds and with a variety of political views—listened to my description of the book and shared their reactions. They gave me confidence that Americans still have the will to defend our nation’s future by limiting its use of federal debt.

And a final thanks to my children, Will, Elena, and Stephen. They accept their responsibilities as citizens and respect idealism. This book has been written with them and—with luck—any grandchildren in mind.

N
OTES

C
HAPTER
1

1
. “From George Washington to Samuel Washington, 12 July 1797,” Founders Online, National Archives,
http://founders.archives.gov/documents/Washington/06-01-02-0209
, ver. 2013-06-26. Source:
The Papers of George Washington, Retirement Series
, vol. 1,
4 March 1797–30 December 1797
, ed. W. W. Abbot (Charlottesville: University Press of Virginia, 1998), 247–249.

2
. George Washington quoted in Hormats,
The Price of Liberty
, xvi–xvii.

3
. James Madison to Thomas Jefferson, February 4, 1790, in Madison,
Letters and Other Writings,
vol. 1, 506.

4
. Reeves,
President Kennedy
, 622–623.

5
. Compare “Table 7.1—Federal Debt at the End of Year: 1940–2018,” Historical Tables of the White House Office of Management and Budget,
http://www.whitehouse.gov/omb/budget/historicals
with United States Bureau of Labor Statistics, “Current Employment Statistics,” Table B-1a,
http://www.bls.gov/web/empsit/ceseeb1a.htm
.

6
. See Appendix B.

7
. Harry S. Truman quoted in Donovan,
Tumultuous Years
, 132.

8
. Robert Taft quoted in Patterson,
Mr. Republican
, 435.

9
. Zelizer,
Taxing America: Wilbur D. Mills, Congress, & the State, 1945–1975
(Cambridge: Cambridge University Press, 1998), 75.