Balancing the Budget? Or Adding a National Sales Tax to the Income Tax?

The stated purpose of Compact for America, Inc. is to get a balanced budget amendment (BBA) ratified. Here is their proposed BBA. State Legislators recently introduced it in Arizona. [1]

The gap between what this BBA pretends to do – and what it actually does – is enormous. It has nothing to do with "balancing the budget" – it is about slipping in a new national sales tax or value-added tax in addition to the existing federal income tax.

We have become so shallow that we look no further than a name – if it sounds good, we are all for it. We hear, "balanced budget amendment," and think, "I have to balance my budget; they should have to balance theirs." So we don't read the amendment, we just assume they will have to balance theirs the same way we balance ours – by cutting spending.

But that is not what the BBA does. In effect, it redefines "balancing the budget" to mean spending no more than your income plus the additional debt you incur to finance your spending. To illustrate: If your income is $100,000 a year; but you spend $175,000 a year, you "balance" your budget by borrowing the additional $75,000. See?

The BBA enshrines Debt as a permanent feature of our Country; gives it constitutional approval; does nothing to reduce spending or "balance the budget"; authorizes a new national tax; and wipes out the "enumerated powers" limitation on the federal government.

Let's look at the BBA, section by section, using plain and honest English. And then let's look at how our Framers wrote our Constitution to strictly control federal spending.

Section 1 says the federal government may not spend more than they take from you in taxes or add to the national debt. [Yes, you read that right.]

Section 2 accepts debt as a permanent feature of our Country – the "Authorized Debt." This is the maximum amount of debt the federal government may incur at any given point in time.

-Initially, when the Amendment is ratified, the "authorized debt" may not be more than 105% of the then existing national debt. So! If the national debt is $20 trillion when the Amendment is ratified, the federal government may not initially add more than 105% of $20 trillion [or $1 trillion] to the national debt.

-After that initial addition to the national debt, the "authorized debt" may not be increased unless it is approved by State Legislatures as provided in Section 3.

Section 3 says whenever Congress wants, it may increase the national debt if 26 of the State Legislatures agree. [Yes, you read that right.]

Section 4 says whenever the national debt exceeds 98% of "the debt limit set by Section 2," the President shall "impound" sufficient expenditures so that the national debt won't exceed the "authorized debt." And if the President doesn't do this, Congress may impeach him!

-No debt limit is set by Section 2! The national debt can be increased at any time if Congress gets 26 State Legislatures to agree. Can 26 States be bought?

-Section 6 defines "impoundment" as "a proposal not to spend all or part of a sum of money appropriated by Congress." Who believes Congress will impeach the President [2] for failing to "impound" an appropriation made by Congress?

Section 5 says any new or increased federal "general revenue tax" must be approved by 2/3 of the members of both houses of Congress.

Now pay attention, because this is a monstrous trick to be played on you: Section 6 defines "general revenue tax" as "any income tax, sales tax, or value-added tax" levied by the federal government.

And when you read the first sentence of Section 5 with the definition of "general revenue tax" in place of "general revenue tax," you see that it says:

"No bill that provides for a new or increased income tax, sales tax, or value-added tax shall become law unless approved by a two-thirds roll call vote..."

Do you see? This permits Congress to impose a national sales tax or value added tax in addition to the income tax, [3] if 2/3 of both houses agree. [Yes, you read that right.]

But the trickery of the drafters of this evil piece of work is even worse. Section 5 also says that any bill for a new sales tax which would replace the federal income tax need only be approved by a simple majority of the members of both houses.

This makes most readers believe that the income tax would be replaced by a sales tax.

But the Amendment does not require Congress to introduce a sales tax to replace the income tax. [Remember, that sales tax requires only a simple majority to get passed.]

Whereas it authorizes Congress to impose a sales tax or value-added tax in addition to the income tax! [This sales tax requires a 2/3 majority to get passed.]

Section 6 sets forth the definitions for the amendment. As you see, you must always read the definitions and apply them to the text.

Section 7 says the Amendment is "self-enforcing." Rubbish! No Constitution or amendment is "self-enforcing." There is only one way to enforce our Constitution: WE THE PEOPLE, who are "the natural guardians of the Constitution" (Federalist No. 16, next to last para), enforce it by learning it and by throwing out politicians who ignore it. And we must always be on guard against the wolves who seek to destroy it.

Our Constitution lists – itemizes – every power WE THE PEOPLE delegated to the federal government when we ratified the Constitution. These are the "enumerated powers." Article I, §8 lists most of the powers delegated to Congress for the Country at large: [4]

Various other Articles, sections, and clauses list additional objects of Congress' spending, such as payment of the salaries of persons on the civil list (Art. I, §6, cl.1; Art. II, §1, next to last clause; and Art. III, §1).

Do you get the idea? The Constitution lists what Congress is permitted to spend money on. Its spending is limited to the enumerated powers, and the salaries of those on the civil list. If you will go through our Constitution and highlight every power delegated to Congress and the President, you will see ALL the objects on which Congress has constitutional authority to appropriate funds. THAT is ALL – ALL – they may lawfully spend money on.

This one page chart depicts the Constitution We established, and most of what Congress may lawfully spend money on. Is it not a thing of beauty? Do you want it back? Then Restore it!

Understand this: All versions of a BBA eliminate the enumerated powers limitations on the federal government. Under all versions, the Constitution is "fundamentally changed" to permit the federal government to do anything they want and to spend money on anything they please.

[1] Compact for America is also trying to use the "compact of the states" provision & is calling for an Art. V convention. Red Flag, Folks! ["Propaganda and the Conspiracy Against Our Constitution"] But for now, let's look just at their dishonest BBA.

[2] Congress always had authority to impeach and remove a President for usurpations of power – see this short Primer.

I have a better amendment:

Fiscal Responsibility Amendment Section I The power of Congress to regulate the value of the dollar is hereby repealed. Section II The value of the Dollar shall be one fifteen-hundredth avoirdupois ounce of gold of which impurities do not exceed one part per thousand. Section III To guard against Congress using its authority over weights and measures to bypass Section I, the ounce in Section II is approximately 28.3495 grams (SI). Section IV The Secretary of the Treasury shall annually report the gold physically in its possession; this report shall be publicly available. Section V The power of the Congress to assume debt is hereby restricted: the congress shall assume no debt that shall cause the total obligations of the United States to exceed one hundred ten percent of the amount last reported by the Secretary of the Treasury. Section VI Any government agent, officer, judge, justice, employee, representative, or congressman causing gold to be confiscated from a private citizen shall be tried for theft and upon conviction shall: a. be removed from office (and fired, if an employee), b. forfeit all pension and retirement benefits, c. pay all legal costs, and d. restore to the bereaved twice the amount in controversy. Section VII The federal government shall assume no obligation lacking funding, neither shall it lay such obligation on any of the several States, any subdivision thereof, or any place under the jurisdiction of the United States. All unfunded liabilities heretofore assumed by the United States are void. Section VIII The federal government shall make all payments to its employees or the several states in physical gold. Misappropriation, malfeasance and/or misfeasance of funds shall, upon conviction, entail the same punishments as section IV imposes for confiscation.

This analysis is weak and wrong for seven reasons. First, keep in mind that to secure ratification, any idea must be capable of attracting support from the Left and the Right. The standard cannot be the perfect Center-Right policy. The standard should be whether the status quo is structurally improved upon without compromising any principles. There is no way in the world that this BBA fails that test. Second, it can hardly be worse than the status quo that we add a state referendum to the process of lifting the federal debt limit. It is a step forward by giving the states a portion of the power they once held in the U.S. Senate when they could control through proxies half of the whole federal legislative power. Having two simple majority processes to jump to secure an increase in the federal debt limit—one within Congress and one requiring a majority of the States—is significant restraint on the federal debt. It is real scarcity. Third, you fail to grapple with the fact that the status quo involves the debtor—Washington—setting its own credit limit with no oversight whatsoever. This is a concentration of power that naturally has led to a runaway debt. The States are closer to the people, less controlled by Washington interests that are dependent on debt. Decentralizing power and control over the debt limit to the states acting as a board of directors certainly enhances the ability of people to control the debt. Fourth, notice there is no loophole for wars, emergencies, special entitlement programs. This is a typical feature of proposed BBAs in the past, which allows enormous gaming potential by Congress. At least any effort by Congress to increase its debt limit will be transparent and subject to a nationwide debate with a referendum of the states being necessary. While certainly the debt spenders in Washington will win a few of those battles, there is no question that having transparency and national debate over efforts to engage in borrowing will enhance the prospects of those who oppose mindless debt spending. Further, it is hard to imagine that even 26 states populated with Jerry Brown on the legislature would approve a debt limit increase by congress with no budget behind it. Fifth, your analysis of the impoundment feature forgets that section 1 of the BBA limits total spending to total receipts when the debt limit is reached. If the President does not impound anything, and the debt limit is reached, this forces an across-the-board sequester—in other words nearly 45% of the budget would be cut without any rational plan. It is ridiculous for you to think that such budgetary bloodletting would not incentivize Congress to impeach the President under those circumstances. Almost as ridiculous to think that the President would not use his impoundment power. Come on! What President that had the impoundment power in history did not use it! Power is used. If there were any reasonable critique of the impoundment feature, it would be its risk of abuse. But that’s why we included a congressional override process that is far lower than a veto override (only simple majorities). Also, yes, we did make a judgment that it was better to have clear lines of accountability to the President and risk abuse of that power, than to have no such accountability. Abuse of impoundments can be corrected by the ballot box just as well as through impeachment. Sixth, your analysis of our tax limit provision is... how do I put this? Complete nonsense. It is so illogical that I cannot even fathom what you wrote. The status quo already allows for layering a sales tax or VAT on top of the income tax with simple majority support from a mere quorum. That is already part of our existing Constitution—which is not perfectly drafted. The tax limit provision raises the passage requirement for any such new tax to two-thirds of the whole number of each house of Congress. That is a clear improvement on the status quo. A simple majority allows for a new sales tax only if it “completely” replaces every income tax. That is another clear improvement on the status quo. Sure this provision does not completely obliterate the risk of taxation. It even continues to allow tariffs to be increased with simple majority support and for tax credits, deductions and exemptions to be closed with simple majority support. But none of this is worse than the status quo. If anything, the drive for revenue through these narrow simple majority thresholds will either fail due to strong push back from impacted special interests, causing spending reductions of necessity, or it will tend to flatten the income tax or replace it with more voluntary consumption based taxes. That’s better tax policy. Seventh, even if taxes raised as a result of the increased debt scarcity established by the BBA, that is BETTER than limitless debt incurrence. Debt that is to be repaid IS taxes. It is taxation without representation. It is the worst kind of taxation both morally and also because there is no effective political check when the burden of taxation is felt by non-voting future generations. If a choice has to be made between increased debt spending or increased taxes on current voting generations, the proper thing is to risk increased taxes on current voting generations because it is politically self-limiting—politicians will get fired if they raise taxes too much. Suffice it to say, either you are not a careful reader or you are deliberately attempting to mislead. Either way, your analysis is weak and wrong.

This plan sounds familiar. From the pages of Atlas Shrugged...

The new owners talked their employees into voting for a grand reorganization of the plant along the lines of a famous slogan: “From each according to his ability, to each according to his need.” All wages were pooled and distributed according to need.

“We’re all one big family, they told us, we’re all in this together. But you don’t stand working an acetylene torch ten hours a day—together, and you don’t all get a bellyache—together. What’s whose ability and which of whose needs comes first? ... Well, anyway, it was decided that nobody had a right to judge his own need or ability. We voted on it. ... It took us just one meeting to discover that we had become beggars—rotten, whining, sniveling beggars all of us, because no man could claim his pay as his rightful earning, his work didn’t belong to him, it belonged to ‘the family,’ and they owed him nothing in return, and the only claim he had on them was his ‘need’ ...

“But that wasn’t all. There was something else that we discovered at the same meeting. The factory’s production had fallen by forty per cent, in the first half-year, so it was decided that somebody hadn’t delivered ‘according to his ability.’ Who? How would you tell it? The family voted on that, too. They voted which men were the best, and these men were sentenced to work overtime each night for the next six months. Overtime without pay—because you weren’t paid by time and you weren’t paid by work, only by need. ...

“It didn’t take us long to see how it all worked out. Any man who tried to play it straight, had to refuse himself everything. He lost his taste for any pleasure, he hated to smoke a nickel’s worth or tobacco or chew a stick of gum, worrying whether somebody had more need for that nickel. He felt ashamed of every mouthful of food he swallowed, wondering whose weary night of overtime had paid for it, knowing that his food was not his by right, miserably wishing to be cheated rather than to cheat, to be a sucker, but not a blood-sucker. ... But the shiftless and the irresponsible had a field day of it. ... They found more ways of getting in ‘need’ than the rest of us could ever imagine—they developed a special skill for it, which was the only ability they showed. ...

“This was the whole secret of it. At first, I kept wondering how it could be possible that the educated, the cultured, the famous men of the world could make a mistake of this size and preach, as righteousness, this sort of abomination—when five minutes of thought should have told them what would happen if somebody tried to practice what they preached. Now I know that they didn’t do it by any kind of mistake. Mistakes of this size are never made innocently. If men fall for some vicious piece of insanity, when they have no way to make it work and no possible reason to explain their choice—it’s because they have a reason that they do not wish to tell. And we weren’t so innocent either, when we voted for the plan at the first meeting. We didn’t do it just because we believed that the drippy old guff they spewed was good. We had another reason, but the guff helped us to hide it from our neighbors and from ourselves. The guff gave us a chance to pass off as virtue something that we’d be ashamed to admit otherwise. There wasn’t a man voting for it who didn’t think that under a setup of this kind he’d muscle in on the profits of the men abler than himself. ... That was our real motive when we voted—that was the truth of it—but we didn’t like to think it, so the less we liked it, the louder we yelled about our love for the common good.”

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