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The Compact's BBA would stop Washington from obscuring deficits and debt with budgetary and financial gimmickry. A balanced budget will only be deemed to exist if cash flow-in (taxes, fees and authorized borrowing under a fixed debt limit) equals cash flow-out (spending) at any point in time. And if Washington needs a debt cushion to handle operations or emergencies, it won't get to set its own credit limit.
The Compact's BBA ensures that there would be outside oversight and intervention when Washington requests increases in the federal debt limit. It would require a majority of state legislatures to approve any increase above an initial debt limit. The initial debt limit would be equal to 105 percent of the outstanding debt upon ratification, giving Congress a one year cushion to develop a responsible budget for the nation at current borrowing and spending rates.
The Compact's BBA would require partisans in Washington to show their cards long before hitting this debt limit, protecting our country’s credit rating from being held hostage to a game of “political chicken.” To ensure the debt limit is enforced, the BBA would require the president to start tightening the belt when borrowing exceeds 98 percent of the debt limit-at least 90 days before any fiscal cliff at current borrowing and spending rates.
Here's how it would work: The President would have to first propose to delay spending money we won't have on specific items. Congress would then be required to override those "impoundments" with proposed alternatives within 30 days if it disagreed. Otherwise, the President's proposed impoundments would go into effect. If neither side acted, the BBA would impose an across-the-board sequester once the debt limit was hit. And Congress would be immediately and clearly empowered to impeach the President for allowing that to happen.
The political dynamics of this impoundment feature maximize the chances that spending will be brought under control before running out of borrowing capacity.
The President's neck will be on the line if impoundments are not made, and Congress will be more than happy to shift the blame for any across-the-board sequester to the President under the clear authority furnished by the BBA's impeachment provision. This will add to the natural incentive any President would have to exercise power delegated to him (or her)-quite frankly, it is hard to imagine any President that would refrain from designating impoundments in the first place to at least frame the debate over debt policy. But unlike the current system in which threatened impoundments emerge with days or hours before running out of borrowing capacity, the Compact's BBA forces the President's cards on the table with weeks or months to go before the fiscal cliff emerges.
Also, the Compact's BBA allows the legislative branch to have better leverage in the negotiations than is currently the case. This is because, currently, when the President threatens midnight hour impoundments, Congress is only able to respond by attempting to repeal or pass new appropriations-which themselves require the President's signature, which means that the President always holds nearly all of the cards in the current debt limit debate. By contrast, the BBA allows Congress to override the President's proposed impoundments with its own proposal based on a simple majority vote (without requiring Presidential approval).
This will ensure both a level negotiating table and transparency on what is at stake if the debt limit is enforced. By forcing specifics on the prioritization of spending with plenty of lead time for debate and negotiations to take place among equals, a more meaningful and deliberative discussion will take place than today's brinkmanship which inevitably leads to panic-induced debt limit suspensions.
In short, Washington will have to balance its budget or prepare a budget to make the case to the states for more debt-long before the midnight hour arrives and the capacity to borrow dries up.
The Compact's BBA also recognizes that our national debt primarily represents a spending problem (Washington is spending our kids' money) but one that may nevertheless require new revenues to fix. To protect against across-the-board tax increases (which could kill the economic growth we need to pay down the debt and maintain our standard of living) the BBA requires any new or increased income or sales tax to secure two-thirds approval of both houses of Congress. But the amendment preserves simple majority approval of increases in tax revenue that result from completely replacing the income tax code with an end user sales tax or reducing or eliminating tax exemptions, deductions and credits. The amendment does not limit or address tariff or fee policies. This ensures the pressure for new revenues would be diverted to making our tax code flatter and fairer-or to sources (tariffs and fees) that the Founders originally intended to be the primary sources for funding the federal government's operations.
The Compact's BBA is an idea that could only originate outside of Washington. It can fix the debt. We can leave our country in better shape than we found it.
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by Nick Dranias
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