Debt and Budget Compromise

The recent government shutdown was of course driven by a political attempt to keep poor people from having healthcare. But the architects of the shutdown had another agenda that they insisted was related: uncontrolled government spending. They claim we need to balance the budget and limit federal debt or our children will suffer.

As economist Mark Weisbrod points out when it comes to national debt, more important than the dollar amount is what percentage of our GDP is reflected in our interest payments on that debt. Currently that it's about 1% which is as low as it has been in 60 years. (http://www.theguardian.com/commentisfree/2013/oct/18/shutdown-takewaway-fair-society)

I have heard other economists make similar points about the irrelevance of the debt. And of course strategic government spending can pay for itself with economic growth. Perennial growth is an issue which I don't care to address in detail at the moment. Suffice it to say there are natural limits to growth, and we will have to come to terms with this eventually.

Weisbrod understands the economic implications of budget and debt far better than I ever well, but if the tea party and by extension the Republican party are so set on balancing the budget perhaps as a compromise that could be worked out. The Republicans have proposed a constitutional amendment, the so-called balanced budget amendment. I'd like to borrow their initial idea and modify it. How about the balanced equitable and just budget amendment.

Below are what could be the first 4 sections of that amendment. The first two borrow from the language of the Republicans proposal. I've added to section 1 the notion that spending could exceed receipts if a government surplus existed. Presumably if outlays never exceeded receipts a surplus would inevitably develop. Section 2 I have modified to reflect the fact that the economy as a whole grows. The next two sections are my additions. I think they speak for themselves. People might squabble about what an appropriate ratio between the top and the bottom should be. The main point is that it is currently out of control.

`Section 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless a surplus exists from previous years and then not exceeding that surplus or unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a rollcall vote.

`Section 2. The debt of the United States held by the public as a percentage of the Gross Domestic Product shall not be increased unless three-fifths of the whole number of each House shall provide by law for such an increase by a rollcall vote

`Section 3. Any fiscal year where budget estimates for outlay exceed estimates for receipts shall result in automatic cuts to current military expenditures unless three-fifths of the whole number of each House of Congress shall provide by law for a reduction in other budgeted or approved  spending by a rollcall vote.

`Section 4. Income tax shall be structured so that the mean post-tax income of the 1% of the taxable population with the greatest income will average no more than 5 times the mean post-tax income of the 20% of the taxable population with the least income

I don't know if limits on the budget and the debt make economic sense but they say politics is about compromise so the left might want to put forward something like this.