Reagan’s Economic Bill of Rights

President Reagan has proposed an initiative he calls an “economic bill of rights” to protect the individual citizen/taxpayer from the excesses of government budget policy.

The initiative contains several proposals, some new, others recycled. The centerpiece is a constitutional amendment requiring a balanced federal budget every year.

Other major features would give the President line-item veto power--the ability to reject a particular spending program without shooting down an entire appropriations bill--and a requirement that tax increases be approved by more than a simple majority of Congress. The package also calls for what is known as marginal budget balance, which would require a spending proposal to indicate how much it would cost and how it would be financed.

The President has called for an annual balanced budget amendment several times. Likewise for the line-item veto.

What is new from the President--though previously proposed by several economists, including myself--are the requirements for a super-majority vote for passing tax increases and the provision linking spending and financing, or marginal budget balance.

I support the super-majority voting provision (although I’d prefer it for spending, rather than tax bills). Requiring a super-majority is helpful because the concentrated interests of certain groups may overwhelm the diffuse interests of the larger group of taxpayers, resulting in, among other things, excessive spending and selective tax breaks.

In the logrolling to pass legislation, votes often are traded to achieve a simple majority on the assumption that the constituents back home will give credit for the new project in their district, but not assign blame for the taxes paid for similar projects in other congressional districts.

However, if the national benefits of a spending program exceed the costs, those costs could be assigned so that all taxpayers get at least as much in benefits as they pay in taxes. Thus, such programs should be able to win more than simple majorities in Congress. As a practical matter, a majority of something like 60% or two-thirds to pass spending legislation would be desirable.

Such a super-majority could be implemented by Congress and would greatly improve the budget process by subjecting spending proposals to stiffer political tests. President Reagan’s proposed super-majority for tax increases would amount to the same thing if taxes were linked more closely to spending by a marginal balanced budget requirement. That provision would force Congress to vote on taxes and spending in packages rather than separately.

But neither that nor the super-majority provision would greatly shift the balance of power between the President and Congress in setting national priorities. It would limit some logrolling, and substantial pork-barrel spending, but would not transfer to the President authority currently in the hands of Congress. The line-item veto, on the other hand, would shift much power to the President, and that is why Congress is unlikely to approve it.

A constitutional amendment requiring a balanced budget every year should be adopted only as a last resort. I share the proponents’ goals of smaller deficits and less government spending but believe that there would be great technical difficulties in drafting and implementing such an amendment.

Indeed, if such an amendment passes, years will be spent in the courts defining what should be considered outlays or revenues. With the budget process beginning two years before the end of the affected fiscal year, projections of tax revenues and budget outlays are important. But because no one knows whether the budget is actually balanced until after it is audited, there still will be incentives to shade these forecasts.

A balanced budget amendment also could impair the economy’s tendency to correct cyclical fluctuations by itself. That is because the amendment would tend to require spending cuts or tax increases during slowdowns and just the opposite during booms. It would be better to require budget balance over the course of the business cycle, with deficits during recessions and surpluses during expansions.

To be sensible, a balanced budget amendment would need to provide for budgets to have separate accounts for capital expenditures and comprehensive definitions of revenues and outlays. It is becoming painfully clear that under the Gramm-Rudman-Hollings balanced budget act, major items are excluded from automatic cuts and the treatment of spending and revenues would flunk an introductory accounting class. As a result, Congress has ample latitude to avoid budget-balancing rules. For example, Congress shifted the military pay date from the last day of the month to the first day of the next month to eliminate a paycheck from the fiscal year.

It is awkward for a President who has presided over a doubling of the national debt to be pushing a balanced budget amendment. But blame for the deficit must be shared by Congress and the President. It would be a shame if some of the novel and worthwhile suggestions contained in the President’s package were ignored.

Linking spending and financing as well as requiring super-majorities for passing spending increases would go a long way toward improving the budget process and should be taken up by Congress immediately. It would indeed be unfortunate if all the attention was focused on the annual balanced budget amendment and the line-item veto, which are unlikely to pass anytime soon.