America's Fiscal Constitution Read Online Free PDF

constitution can inspire as well as instruct. It begins with a weary Virginian who traveled on horseback toward his first Christmas at home in eight years. He was troubled by debts owed to the soldiers he led, some of whom had chased Congress out of town because it could not honor its financial commitments.

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    R EVIVING T RADITIONAL B UDGET P RACTICES
    M ODERN A PPLICATION OF T RADITIONAL P RACTICES
    Ending the addiction to debt takes more than political courage. Four pillars of the American Fiscal Tradition—clear accounting, “pay as you go” budget planning, trust funds financed entirely with dedicated revenues, and explicit congressional approval of debt for specific amounts and purposes—once curbed the temptation to borrow. These practices helped federal leaders reduce debt for a minimum of ten out of eleven straight years after each of the nation’s first four peaks in debt. After the fifth debt spike (in 1945), traditional budget practices helped steadily reduce the burden of debt for three decades. Modern variations of time-tested practices could help federal leaders respond to the nation’s current debt crisis.
    Reform 1: A Separate, Tax-Financed Federal Funds Budget
    Driving a car without a dashboard and transparent windshield is dangerous, and so is budget planning without a clear view of the relationship between annual spending and revenues. Thomas Jefferson insisted that federal budgets be “clear and intelligible” to “any man of any mind.” 1 Today federal accounting often disguises the level of borrowing, the use of borrowed funds, and the actual burden of existing debt. For this reason, the president should submit, and Congress should be required to vote on, a federalfunds budget—apart from a trust fund budget—with spending limited to estimated revenues. A separate trust fund budget would encompass all the spending supported entirely by dedicated trust fund revenues. Any spending to be funded with debt should be excluded from the trust fund budget.
    A tax-financed budget would help minimize distracting debates—such as those in the 1980s and after 2000—about what borrowed money paid for. Separation of federal funds and trust funds budgets would eliminate complexities of actuarial accounting from much of the federal funds budget and reduce the temptation of federal officials to count social insurance revenues as income without accruing a related liability. Use of a separate trust funds budget is hardly radical; it conforms to the procedure in place before fiscal year 1969.
    A tax-financed federal funds budget would also highlight the cost of debt service and, in doing so, serve as a reminder that debt is not free. Citizens today have difficulty even finding the federal interest expense payable annually from federal funds revenues. For example, in fiscal year 2011, the federal funds budget paid $418 billion in net interest, an amount $188 billion higher than the amount shown in the unified budget. 2 A tax-financed budget would also make the consequences of tax cuts more visible by explicitly linking the relationship between spending and taxes. No one likes taxes, and the only reason to tax is to pay for public spending.
    Even though enactment of a separate tax-financed budget would not preclude a separate authorization of debt, it would strengthen the political and management skills required to link spending and tax policies. Those skills have atrophied.
    Even good faith revenue estimates will, of course, sometimes miss the mark. To reduce this risk, revenue estimates should be adjusted more frequently than twice a year, the current practice. Large corporations adjust their internal revenue forecasts at least monthly and announce any changes to their estimates quarterly.
    Reform 2: Tax Financing of Debt Service and Essential Defense
    The tax-financed budget should pay for all interest expenses and at least a basic level of national defense. Debt service and some level of national security