Definitions Matter: Part 6 in the 7 Part Compact BBA Series


This posting is the sixth in a 7 part series explaining the Balanced Budget Amendment at the heart of the Compact for a Balanced Budget.

Previously, we explained that section 1 of the model Balanced Budget Amendment ensures that the federal government cannot spend more than cash on hand from ordinary revenue sources and plain vanilla full faith and credit borrowing. Then we discussed how sections 2, 3, and 4 of the model Amendment set and enforce an initial constitutional debt limit that limits available borrowing capacity to 105% of the outstanding full faith and credit debt, plus any increase approved by a majority of state legislatures. Then, we explained the powerful yet plausible tax limit of section 5 of the Amendment. This email explains section 6 of the Amendment, which supplies the definitions needed for the key terms of the Amendment.

The first thing to notice about section 6 is that it highlights the fact that there are only 5 substantive provisions in the model Balanced Budget Amendment! The proposed model policy is one of the shortest BBA proposals out there. It only seems long because so many great policies are packed into it.

The second thing to notice is that the definitions used in Section 6 are designed to maximize transparency and eliminate all known tactics used to circumvent constitutional debt limits. The definition of debt is meant to limit available credit to ordinary full faith and credit bonding. The definition of outstanding debt is meant to ensure that the debt limit is set in relation to bonds held anywhere and by anything—rather than off-books borrowing and other exotic means of funding government. This ensures, among other things, that debt held by the Federal Reserve is still counted against the debt limit even if the Federal Reserve (like the Bank of England recently declared) decided essentially never to cash them in. The definition of “total outlays” is meant to be as broad as possible to ensure the spending limit in Section 1 reaches all spending attributable to the federal government. The definition of “total receipts” is designed to be as narrow as possible to prevent the deposit of receipts from trust fund-raiding, money printing, or sale/lease-back schemes from directly increasing the spending limit. The definition of “impoundment” is used to conform to the current constitutional understanding of the President’s inherent impoundment power to avoid any possibility that Section 4 could be construed as granting new impoundment powers, rather than regulating existing impoundment powers. The definition of “general revenue tax” is meant to restrict the two-thirds approval requirement of the tax limit to the subset of the federal government’s taxing powers that are most likely to be abused (income and sales taxes).

In essence, Section 6 recognizes that definitions matter and it uses definitions to ensure that the preceding sections are as strong as possible.

Tomorrow, we will briefly discuss the final section of the Compact's BBA.

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