top of page

What Should Charlie Do?

Why doesn't the Compact for a Balanced Budget's Balanced Budget Amendment have an explicit national emergency exception that Washington can invoke to borrow without limit? A genuine national emergency exception should not be equated with a“Washington gets to unilaterally suspend the debt limit for self-declared emergencies exception.” Indeed, doing so would be unwise because Washington is addicted to debt. Like any addict, it cannot be trusted with control over its supply. For example, if "declared war" were an exception to the Amendment’s debt limit, would anyone really doubt that Congress would start declaring wars routinely to borrow money? Of course, Congress would not do so transparently. Congress would most likely bury a vaguely worded “police action” statement in an omnibus spending bill; and later claim that it invoked the declared war exception when it was caught borrowing beyond the debt limit. The truth of the matter is that the national debt will never be fixed without imposing external discipline on Washington. Indeed, that is the reason why states are mobilizing to utilize Article V in any of its manifestations, not just by way of the Compact for a Balanced Budget. Hence, the Amendment's "national emergency exception" consists of the provision granting a simple majority of state legislatures the power to approve an increase in the constitutional debt limit it imposes. State legislatures are a natural source of such external discipline because, before the 17th Amendment, the states were in a position of control over the U.S. Senate, with control over half of the federal legislative power (including the borrowing power), half of the appointments power, and half of the treaty power. Giving state legislatures the power to approve increases in a constitutional debt limit modestly restores only a portion of the original amount of external discipline the Founders originally intended to bring to bear on the federal government. Also, it should be underscored that the Amendment’s constitutional debt limit furnishes the federal government with a large starting line of credit. Under the Amendment, the federal government will have a revolving line of credit equal to 105% of the outstanding debt on ratification. If $20 trillion were outstanding on ratification, that means the federal government’s starting line of credit would be $21 trillion. If this line of credit were managed responsibly by paying it down in good times and conserving borrowing capacity for bad times, there would be plenty of borrowing capacity to handle any number of plausible war or national emergency scenarios—without involving the states in any approval process whatsoever. Indeed, it is doubtful that additional emergency borrowing would be necessary if the federal government behaved in a fiscally responsible manner. But even if the starting line of credit were mismanaged, the President and Congress are fully authorized by the Amendment to give the highest priority to emergency spending needs and to hold in abeyance all other spending obligations. This is because the Amendment requires the President to designate spending impoundments as soon as 98% of the line of credit is utilized, subject to override by simple majorities of Congress with an alternative impoundment of an equal or greater amount. If a national emergency strikes, this enforcement mechanism ensures that both credit and tax cash flow could be reprioritized and redirected by either the President or Congress to handle the necessary emergency spending. Finally, nothing in the Amendment stops Congress from anticipating national emergency borrowing needs and creating a statutory “lock-box” reserving additional borrowing capacity for designated national emergencies. Against the backdrop of this statutory lock-box, Congress could then request approval from the states to increase its borrowing capacity. For example, long before any national emergency arose, Congress could pass a law that says, “the next $10 trillion in additional borrowing capacity approved by the states shall be used exclusively for spending in times of national emergency X,” and then refer-out a corresponding measure requesting a $10 trillion increase in its borrowing capacity from the state legislatures. The states could then review the statute and decide how secure the “lock box” really was, and whether it would be good policy to trust Washington with unilateral control over such additional borrowing capacity. If the proposal were rejected by a majority of state legislatures, especially given Washington’s track record, it would be fair to conclude that the lock box was rigged in favor of illegitimate spending—or that a strong case could not be made for additional borrowing capacity (given how large the starting line of credit is under the Amendment). The bottom line is that we can rely on a simple majority of state legislatures to approve truly necessary additional borrowing capacity for any genuine national emergency. By contrast, we surely cannot trust Washington with any degree of unilateral power to borrow money without limit. If you agree, please like and share!

Featured Posts
Recent Posts
Follow Us
  • Wix Facebook page
  • YouTube App Icon

Visit CFA on Facebook

Get Educated about CFA on YouTube

Search By Tags
No tags yet.
bottom of page