NCPA - National Center for Policy Analysis

Balanced Budget Amendment Could Reduce National Debt

May 3, 2013

The last time the national debt exceeded 100 percent of gross domestic product was during World War II, when the Unite States assumed massive debt to fund the war effort. During the past decade, the national debt has skyrocketed to $16.5 trillion while for the fourth year in a row Congress has failed to produce an annual federal budget. The Compact for America (CFA), which proposes that state legislatures use an interstate compact to advance a Balanced Budget Amendment (BBA), could reduce the national debt to acceptable levels, says Nick Dranias, director of the Center for Constitutional Government at the Goldwater Institute.

  • The Balanced Budget Amendment would require a majority of state legislatures to approve any increase above an initial debt limit.
  • Advancing a balanced budget requirement through interstate compact allows states to utilize their sovereign power under Article V of the U.S. Constitution, which authorizes states to originate constitutional amendments by applying to Congress to call a convention for proposing amendments.
  • Without the interstate compact process, ratifying an amendment would require a lengthy process with more than five different state and federal legislative components.

The CFA BBA is designed to spring into action upon certain conditions: when either spending exceeds 98 percent of the debt limit or when the national debt exceeds 105 percent of the outstanding debt upon ratification.

  • The CFA BBA would be particularly effective because it requires total federal outlays to never exceed total receipts at any point of time.
  • This means that accounting techniques cannot be used to allow greater spending because total receipts and total outlays are defined by the amount of actual cash on hand.
  • The proposal would restore some balance back to the system of checks and balances by giving states a say in the federal government's borrowing ability, which undeniably affects the states.

The Compact for America Balanced Budget Amendment would set a firm constitutional cap on debt that would help the dollar retain its strength. The design of the interstate compact is full of safeguards that ensure the legitimacy of the convention process and the constitutionality of the whole process. Since no interstate compact has ever been struck down, the CFA would serve as a valuable tool for states to reign in federal spending.

Source: Nick Dranias, "States Can Fix the National Debt: Reforming Washington with the Compact for American Balanced Budget Amendment," Goldwater Institute, April 23, 2013.


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