For Dr. Barry Poulson, University of Colorado’s Emeritus Professor of Economics, and co-author of “Can the Debt Growth Be Stopped?” the nation’s debt crisis is an urgent issue that must be addressed in this year’s election. Poulson explained the seriousness of the issue at an event August 3rd at Heartland Institute in Arlington Heights.
Poulson believes that both Hillary Clinton and Donald Trump lack credibility when it comes to facing this nation’s federal debt crisis, as neither candidate is offering solutions that would halt the federal debt from continuing to grow at an unsustainable rate. Hillary Clinton wants to increase taxes on the wealthy to fund her ambitious federal program. Trump is proposing a tax cut that would definitely reduce revenues over the next decade by $10 trillion. Furthermore, Clinton wants to significantly boost entitlements; Trump want entitlement spending protected.
The economics professor cited how the Congressional Office is projecting federal debt increase to equal more than 100% of the national debt over the next decade. For him, it’s highly questionable whether higher tax rates would increase tax revenues in the long run. Instead, they would foster retardation and stagnation in economic growth.
Poulson’s solution to this nation’s $20 trillion federal debt crisis, and the impending financial collapse of this Nation’s economy, calls for a new fiscal rule, a national debt brake, similar to the fiscal rules enacted in Switzerland. The Swiss Debt Brake requires that expenditures are equal to revenue in a given year adjusted for the ratio of actual income to potential income. Potential income is estimated using the trend rate of growth in income in prior years.
For two decades Switzerland has used the Debt Brake to keep its expenditures and revenue in balance. Although other countries in Europe and OECD countries have used the Swiss Debt Brake as a model to enact new fiscal rules, Switzerland provides the best example of a country in which direct democracy played a crucial role in the design and implementation of its fiscal rules.
Research by the ALEC suggests that a 1% reduction in the annual rate of growth in federal spending is required in the long term to bring this nation’s spending and revenue into line; however, even with the suggested small amount of reduction in the annual rate of growth Congress has shown that it’s incapable of constraining the grown of spending even by a modest amount. Time after time Congress has increased the debt ceiling and ignored statutory limits on spending.
Despite the will of Congress to restrict the growth of spending, ALEC research has determined that fiscal rules similar to those in Switzerland could reduce this nation’s rate of growth to the suggested 1% reduction a year as required to bring expenditures and revenue in balance. What is more, the proposed fiscal rules would maintain a steady growth in federal spending over the business cycle, with surpluses during periods of economic expansion offsetting revenue shortfalls during periods of recession. As resources are shifted from the public sector to the more productive private sector, this would restore long-term trends in the rate of growth in income and employment.
Financial discipline lacking in Congress for Swiss Brake to be enacted through legislation: Con Con cited as solution
For Swiss fiscal rules to work in this nation, reforms to federal programs would be necessary. Even so, federal programs expenditure constraints could vary in growth rates through priority budgeting, which would include requiring Congress to identify waste and inefficiency in all federal programs. Poulson did admit that even with fundamental reforms to Social Security and Medicare, which politicians have neither the courage nor the will to do, both will increase in the long term due to the demographic shock of baby boom retirements. If spending was constrained for all other federal programs, perhaps the case for entitlement reform would easier to make.
Expressing misgivings throughout the federal government to set priorities or to constrain spending, Poulson, an advocate of an Article V Amendment Convention (Con Con), believes a proposed balanced budget amendment to the U.S. Constitution is the only way to go to achieve financial solvency. As Poulson said, “If elected officials fail to balance the budget, citizens are left with one recourse — an Article V Amendment Convention.” Poulson noted that over the past four decades a resolution calling for a balanced budget amendment to the Constitution has been introduced numerous times, but each time Congress failed to reach the two-thirds vote required to place the measure on the ballot for ratification. The Swiss Debt Brake was enacted as a constitutional amendment through a referendum requiring a double majority vote of approval by citizens and cantons (states that make up Switzerland).
Dr. Poulson (also the mission of The Heartland Institute) is working to convince enough states to sign on to the balanced budget amendment to the Constitution to reach the two-thirds required for Congress to call the convention. Poulson has concluded that a convention will allow citizens, rather than their elected representatives, to vote on fiscal rules requiring the federal government to maintain, in the long run, a healthy balance between expenditures and revenue.
Thoughts expressed by Poulson in response to questions addressed to him from audience members and from individuals listening on the Internet:
- A huge volume of research has been done about how to address the debt problem. Successful countries are those who have lowered taxes.
- The balanced budget in the 90’s was due mostly to rapid economic growth, but better economic and fiscal policies were also a factor.
- The last two decades have been dominated by fiscal failure with economic growth less than 2% a year.
- 60% was deemed to be the magic number. For if debt reaches more than 60% of a nation’s budget, it become more and more difficult to service the debt until a point is reached where almost all spending must be eliminated except interest on the public debt.
- The debt ratio of this nation exceeds that of the failing European nations like Greece and Spain.
- Millennials should be the most concerned over the present massive transfer of wealth to retirees (young to old).
Nations, such as Brazil and Venezuela, are facing fiscal and political turmoil over poor decisions made by their elected officials. The same fate may happen to the United States as the Federal Reserve prints evermore money, the Congress raises again the debt ceiling, and the politicians spend trillions of taxpayer dollars, with no will to address the national debt close to $20 trillion and a budget deficit of close to $500 billion.
But is Con Con (Article 5) a workable solution to the financial crisis? Three necessary circumstances existed for success of the original Constitutional Convention, which do not exist today: (i) secrecy from the media, (ii) the participants had all given their lives to fight against tyranny in the American Revolution, and (iii) the selfless leader George Washington presided. We have none of those necessary ingredients today, so would it really be possible to limit what Congress would allow in calling the convention?
For more information, view the entire youtube program here, “How to Limit Government Spending”, featuring Dr. Barry W. Poulson.
Serving as the event host was Kyle Maichle, Project Manager of Constitutional Reform. It was Kyle’s Constitutional Reform Department that sponsored the event. “Can the Debt Growth be Stopped?” can be ordered through Lexington Books by calling 1-800-462-6420 or at https://Rowman.com/Lexington. A 30% discount is being offered, valid until 8/31/17. To receive the discount, use code LEX30AUTH16 when ordering.