March 16, 2013

By Josephine Djuhana

NATIONAL HARBOR, Md.—Some conservatives believe a federal balanced budget amendment is an essential reform for fiscal management in Congress. That was the topic of discussion during a panel at the Conservative Political Action Conference (CPAC) at the National Harbor in Maryland.

Grover Norquist, the founder and president of Americans for Tax Reform, moderated the discussion and began with a simple two-part plan for Washington to balance the budget—by “never raising taxes” and “not spending so much of other people’s money.” He also highlighted Paul Ryan’s recently unveiled budget, which rolls back entitlements and federal power, and balances the budget without raising taxes. The budget, according to Norquist, was not only a way to reduce the size of the federal government by reforming, but also a “step in the right direction to enact tax reform.”

Rep. Andy Harris, R-Md., said in reference to the Senate, “They don’t believe that the spending is the problem, and they don’t believe the debt or the deficit is a problem.” Anyone who has read Paul Krugman would know that to be the case. And even President Obama recently charged that he was not interested in a “balanced budget just for the sake of balance.” With much concern mounting over the nation’s ever-growing $16 trillion deficit, it’s no wonder that conservatives are now looking for ways to force Congress to create a balanced budget. But Democrats in Washington don’t seem to seem to agree on the need to halt spending, as the budget proposal from Senate Democrats, according to Norquist, “raises taxes and never balances the budget.” The budget plan includes $1 trillion in tax increases and a new $100 billion stimulus plan. It also increases spending by 60 percent over the next ten years, leaving an additional deficit of $500 billion ten years from now.

“That’s why you need a balanced budget amendment, because in the end, [Washington] can’t restrain itself,” Rep. Harris said. “And we certainly can’t guarantee that future Congresses will restrain themselves.”

The panelist consensus was that outside intervention is needed in order to limit spending by Congress. “Unlimited debt is the fairy dust that makes unlimited government function,” said Nick Dranias, a director at the Goldwater Institute.

There are two methods to ratify a constitutional amendment, but the path through Congress does not seem promising, as it requires a two-thirds majority approval in both houses of Congress. The state method is the alternative.

“In the state method, there is a critical check and balance on federal government,” said Derrick Khanna; he’s a former professional staff member for the Republican Study Committee. “It is unfortunate that this method has never been used as our Founders intended.”

All that is needed is a three-fourths majority of states to ratify a constitutional amendment. “States across the country are pushing for a federal balanced budget. First it was Florida, in 2010, and then it was New Hampshire, last year,” said Khanna.

Effects of a balanced budget amendment

There are certain fears that with a balanced budget amendment, members of Congress could force a tax increase in order to ensure that revenues keep up with expenditures.

But Arizona, which has a balanced budget requirement, has used this obligation to its benefit by rejecting Obamacare. When Governor Jan Brewer attempted to raise taxes in order to fund Obamacare in the state, the state legislature shot the proposal down, as state tax increases require a two-thirds majority in order to be ratified.

The balanced budget requirement also seems to be working for the state of Texas.

Texas Governor Rick Perry was also present at CPAC, and delivered short remarks on his state in comparison with the federal government.

“Texas has a balanced budget and a surplus, and is creating more jobs than any other state in the Union, and we’re doing this with a part-time legislature that meets for only 140 days every other year,” said Gov. Perry. “Our legislature—they come in and they pass laws, and then they go home and live under those laws.”

He then emphasized that states should be “the laboratories of reform.”

But instead, we have a federal government that mandates and dictates regulations to states, what with Obamacare and the expansion of Medicaid, the proposed increase in the minimum wage and more. Many conservative allies have fallen to money from the federal government and special interest groups, and we have reached a point where it seems that nothing can stop Washington from continuing on its taxing and spending binge.

“Washington doesn’t worry about how to pay its bills; they just charge it to our grandchildren’s accounts,” said Gov. Perry. “But in Texas, our constitution requires a balanced budget.”

Gov. Perry emphasized that Texas’ “number one ranking when it comes to job creation” is directly correlated to having “balanced budgets and one of the lowest tax and spending rates in the nation.”

Framework for a balanced budget amendment

During the panel, Nick Dranias highlighted the Compact for America, which is a formal amendment to balance the budget and has additional inclusions that work to prevent outright taxation by Congress in order to balance the budget.

But the path to Congressional discipline on the fiscal matters will be an uphill battle, yet many activists would like to see Congress reexamine itself and its practices when it comes to balancing the budget. As government expands, liberties decrease, and the best way to curb government intervention is to take away its ability to spend recklessly.

By Wayne Lusvardi

Imagine a teeter-totter with a chubby boy on one end and a thin boy on the other.  The teeter-totter can be balanced either by two chubby boys or two thin boys.  It can be balanced heavy or balanced light — either way will work.

Under Proposition 58, California is required to balance its budget.  California Gov. Jerry Brown wants you to believe that the California budget needs to be balanced heavy or high. That is apparently how he is coming up with his $16 billion state budget deficit. It is not a lie to say the budget needs $16 billion to be balanced — however, it is possible that the budget could be balanced without the $16 billion.

Even the State Legislative Analyst now acknowledges there is no need to cut $5.5 billion from the K-12 school budget.  This statement essentially undermines the need for Brown’s $8.5 billion tax increase on the November ballot.

Composition of the General Fund

There are several pots that make up the state budget. Brown wants you to look at the pot of the state operating-budget — called the general fund — shown in Column 1 in the table below.  The general fund has declined only about 10 percent, or a total of $10 billion, since the peak of the Mortgage Bubble in 2007.  The prior reported state budget deficit was estimated to be just about ten billion dollars. But Brown now says the falling tax revenues have made the general fund budget deficit increase to $16 billion.

Sales and income tax receipts have reportedly declined.  But total expenditures including Federal fund transfers have increased 8.1 percent, or a total of $15.84 billion, from 2007 to 2012 (see Column 7 below).

Overall state spending in California is up, even though some components of the budget have decreased.

The “general fund” (Column 1 in table below) can be gamed to the point where it is meaningless.  As writer Alyssia Finley of the Wall Street Journal writes in her article “Will California Ever Learn”:

“For the past several years legislators have been using special funds [fees earmarked for special purposes –- see Column 2 below] to pay for programs that are usually financed by general fund spending.”  This is what the term “fungible” means –- the funds can be applied to several categories.

The best number to look at is Gross Spending Minus Federal Funds (Column 5 below).  Based on that, the state budget is running less than a $1 billion –- or 0.5 percent –- shortfall.  That is without considering President Obama’s and California Attorney General Kamela Harris’s $18 billion foreclosure bailout for California.  Brown is diverting about $410 million of that bailout into the general fund.

Moreover, according to the state Department of Finance website, 85 percent of the $749.5 billion in General Fund Deficiencies – or $635.1 million – are in Medi-Cal.

Public education is not shown as running a deficiency. The apparent reason is that public schools “sell well” with middle-class taxpayers while Medi-Cal can’t be sold to the public as convincingly.

The California budget is teetering — but Its imbalance is caused by chubby-boy spending, not skinny tax receipts.

Historical Budget Expenditures