The Case for a Balanced Budget Amendment Now

Statement of

Dr. Jim Garlow
Chairman, Renewing American Leadership Action
Before the House Judiciary Committee Subcommittee on the Constitution Hearing on
The Constitution and the Federal Deficit
May 13, 2011

SUMMARY

H.J.Res. 1 adds three principles to the Constitution: mandating an annual balance between revenue and expenditures; a supermajority to raise taxes; and a cap on future federal spending.
Adding all three of these principles is necessary to end our fiscal crisis.

GAO’s study of duplication and waste has proven taxpayers could save hundreds of billions of dollars every year without cutting services.

Government “stimulus” is a fallacy based on false, single-entry accounting, which ignores the fact that every federal dollar is extracted from the job creating capabilities of the private sector.

Legitimate government comes from the consent of the governed. Limited government is legitimate government. Heedless spending violates the legitimacy of our republic.

Sending this Balanced Budget Amendment to the people for ratification offers a test and a proof of the legitimacy of our government.
We should trust the American people.

TRANSCRIPT

Mr. Chairman, and members of this distinguished committee, Good morning. Thank you very much for the opportunity to testify in support of H.J.Res. 1, The Common Sense Balanced Budget Amendment.

I am Jim Garlow, Senior Pastor of Skyline Wesleyan Church in San Diego, CA. I present a daily radio commentary called “The Garlow Perspective,” which is heard on 826 radio outlets. Several years ago I founded the Pastors Rapid Response Team, a network of several thousand pastors that is committed to the sacredness of life, the sanctity of marriage, as well as religious, personal and economic freedoms. We were active in the enactment of the California’s Proposition 8, which defined marriage as between a man and a woman, now Article 1, Section 7.5 of the California Constitution.

Renewing American Leadership Action

Earlier this year, while continuing as a San Diego pastor – I was appointed to be the Chairman of ReAL-Action (Renewing American Leadership Action), which is based in Washington, DC. ReAL Action is the 501C4 counterpart to Renewing American Leadership, ReAL, which is a 501C3 educational foundation, founded by former speaker Newt Gingrich.

The Mission of Renewing American Leadership and ReAL Action is to preserve America’s Judeo-Christian heritage by defending and promoting the four pillars of American civilization: faith, family, freedom, and free enterprise. We are dedicated to educating, organizing, training and mobilizing people of faith to renew American self-government and America’s role in the world.

ReAL Action was the organization that developed the concept of a three-part balanced budget amendment. Our proposal, the Common Sense Balanced Budget Amendment, added a requirement for a supermajority in the House and Senate to raise future taxes, and the Pence/Hensarling cap on federal spending, to the traditional balanced budget amendment, which Speaker Gingrich passed through the House and came within one vote of passing the Senate in 1995.

The BBA Now Coalition

ReAL Action organized the BBA Now Coalition, which was represented on your first panel this morning by Andrew Moylan of National Taxpayers Union. As Andrew told you, the BBA Now Coalition is comprised of more than 90 campus and grass roots groups, including the following national organizations:

American Civil Rights Union (ACRU)
National Taxpayers Union (NTU)
Americans for a Balanced Budget Amendment (ABBA)
National Tax Limitation Committee
Americans For Tax Reform (ATR)
ReAL Action
American Solutions (AmSol)
Regular Folks United
Balanced Budget Amendment Now
60 Plus Association
Contract From America (CFA)
Tea Party Express
Institute For Liberty
Young Americans for Freedom (YAF)
Let Freedom Ring
Young Conservatives Coalition (YCC)

Our website is www.bbanow.org

Why I’m Here:

Mr. Chairman, I believe it is vital to the future of our republic that this committee mark-up The Common Sense Balanced Budget Amendment, H.J.Res 1, and report it to the House Floor for passage; and that the House send it out to the American people for their consideration and decision.

What H.J.Res. 1 Would Do

This constitutional amendment is necessary to force Congress and the President to confront and resolve our cancerous fiscal crisis. It will end the annual budget deficit and stop the bleeding. And it will prevent future Congresses or Presidents from relying on tax increases or borrowing to balance the budget.

H.J.Res. 1, The Common Sense Balanced Budget Amendment, would add three new principles to the Constitution:

1. A requirement that federal receipts and outlays balance every year, unless Congress declares a war or a national emergency, as defined in the amendment;

2. A requirement that future tax increases must be passed by a three-fifths supermajority vote in the House and Senate; and

3. A limitation on spending that will tie future federal outlays to an external standard, such as 20 percent of GDP, which matches the historical average level of federal spending.

Why All Three Of These Provisions Are Necessary

This amendment begins with a traditional balanced budget amendment. It would force the revenues and outlays in the annual budget to balance.

Unfortunately, as we have learned, this isn’t sufficient. The big spenders have learned that they can avoid spending cuts by claiming to “balance” any budget by simply plugging-in sufficient tax increases in their budget to provide the missing income. After the allegedly balanced budget has been enacted, in the real world, those draconian tax increases seldom actually pass. And those that do never generate the revenue that their static revenue estimates promised—leaving us with a continually growing deficit and an out of control debt.

So H.J.Res. 1 includes a second provision that will require a three-fifths supermajority in the House and Senate to raise taxes in the future.

But even that isn’t enough, since the real problem isn’t taxes—it’s over-spending.

It won’t do us much good to balance the budget if the federal government keeps consuming 24.5 percent of GDP and rising, where it is today. That would still leave us with a European-style socialist economy.

So the third provision in H.J.Res. 1 limits future federal spending to one fifth of GDP. The Senate’s version of the Common Sense Balanced Budget Amendment, S.J.Res. 10 limits federal spending to 18 percent of GDP, which is the traditional level of federal receipts. We would certainly support a cap at that level if it could pass the House. The fact of a spending cap and a supermajority to raise taxes is much more important to us than the specific percentage.

Together these provisions transform this proposal into a comprehensive vehicle to end our national fiscal crisis and restore our national solvency.

Why a Constitutional Amendment is Necessary to End Our Fiscal Crisis

Rather than treasuring and celebrating the limited government our founders willed to us, since the Progressive era our governing establishment has been moving toward an all-encompassing State that intends to dominate our lives. And the way they have been doing it is through runaway spending.

According to the Heritage Foundation’s 2011 Chart Book, since 1970 federal spending has grown more than ten times faster than the median income of Americans. The annual federal budget did not reach $1 trillion until 1987, but exceeded $2 trillion in 2002 and $3 trillion in 2009. This rate of growth was unsustainable at the time, but that was before the recession led to an explosion of irresponsible federal spending that now stretches for as far as the fiscal eye can see. President Obama’s latest budget plans to spend more than $46 trillion over the next decade, without even a gesture in the direction of solving our long-term fiscal crisis.

According the Congressional Budget Office, if Congress enacts President Obama’s 2012 budget, interest payments on accumulated deficits will total $931 billion in 2021 alone. That would consume 20% of all tax revenues. When we then add the cost of mandatory programs like Social Security, Medicare, and Medicaid, 95% of all tax receipts would be spent before Congress can begin to fund national defense or any other essential function of government. This is simply unsustainable. As Richard Nixon’s Chief Economist Herbert Stein famously said: "That which cannot continue, won't."

GAO Finds Hundreds of Billions in Duplication and Waste

And just how carefully have our stewards in Washington been spending all our tax dollars during this explosion of federal spending? According to the Government Accountability Office, it’s a scandal of epic proportions.

A new law, attached to the last debt limit increase by Senator Tom Coburn (R-OK), mandated that the GAO begin analyzing federal programs for duplication and waste. On March 1 of this year the GAO published its first annual “Report on Opportunities to Reduce Potential Duplication,” which covered slightly more than one third of all federal spending. The auditors uncovered significant duplication in 33 areas, including:

Twenty agencies operating 56 programs dedicated to financial literacy. GAO and agencies can’t even estimatewhat they cost.
Highways programs have not been rebooted since 1956. The Department of Transportation (DOT) spends $58 billion on 100 separate programs run by five DOT agencies with 6,000 employees. GAO says the programs have "not evolved to reflect current priorities in transportation planning."
In 2007, the U.S. Agriculture Department paid $1.1 billion in farm subsidies to 170,000 dead people. Fifteen federal agencies now oversee 30 food laws, and at least four departments compete to administer 80 economic development programs.

As Senator Coburn rightly said: “This GAO report shows we could save taxpayers hundreds of billions of dollars every year without cutting services.”

A large part of our government spending problem has been the ability of the proponents of higher spending to portray their proposed increases as the only tool in the fiscal toolbox that could “stimulate” the economy out of various recessions. But the “stimulus” they offer is a ruse to simply allow them to fill up at the federal trough. Like illusionists performing “magic” tricks on a stage through sleight of hand, the spenders call attention to the hand that is handing out taxpayer-funded largess. But meanwhile, the illusionist’s other hand has been fleecing the pockets of their audience—and impoverishing their children.

Government “Stimulus” and the Fallacy of Single-Entry Accounting

Money doesn’t grow on trees. It comes from people. And yet since the 1940s there has a pervasive fallacy in the discussion of economic policy inside the Beltway that treats government spending as a single entry accounting transaction that does all sorts of good things—and yet has no cost.

The mainstream media and a large part of the Washington chattering class have agreed to describe federal spending as a stimulus—with no quote marks around that term—as if spending that money generated a credit to our national ledger, but somehow did not generate an equal and opposite debit to some other part of our economy. But single-entry accounting is a throw back to pre-modern poverty and absolutism. It’s an illusion and a fraud.

Ever since Venetian merchants invented double entry accounting at the end of the 13th Century we have understood that spending money from one account generates an offsetting debit in another account. The two accounts must balance or the enterprise will collapse. The invention of double entry accounting boosted trade and commerce tremendously. It transformed the medieval economy of Italy into the Renaissance. The very concept of capital came from this new way of keeping track of who owns what.

Double entry accounting made banking reliable for the first time, and it made the limited liability company possible. People were much more willing to invest in a wide variety of things once they knew they could limit their losses through improved accounting. The economy in the West took off. But in the last century, since the Progressive era, we have lost touch with our fundamentals in both public accounting and in constitutional theory.

For some reason we have developed a huge blind spot in our public policy discourse that blocks out the fact that every single dollar that government spends has first been extracted from the private sector. The truth is that the government has NO money of its own. The only revenue the government generates has come out of the pockets of the private sector. The truth is the only way there is a net “stimulus” to the overall economy from government spending is if the goods and services the government buys somehow manage to generate more jobs and more economic activity than the people in the private sector would have generated if they had been allowed to keep their own dollars. We know that doesn’t happen.

Government “stimulus” is a dangerous fallacy; based on deliberately ignoring the investment opportunities that the private sector is prevented from pursuing, and the jobs those opportunities would have created. We continue living with the single entry delusion that government spending is free. But the debits we have been generating are still accumulating, and our books are eventually going to be balanced one way or the other. How much better it will be if we change course voluntarily and avoid a collapse.

Reducing federal spending significantly would provide America’s productive private economy with enormous additional resources to generate jobs and economic security for all Americans. H.J.Res. 1 provides an important tool to make that happen.

But it does a lot more than that. By allowing the American people to weigh in on this vital issue, this bill helps restore the legitimacy of our government.

A Test of the Legitimacy of our Government

Government legitimacy doesn’t grow on trees either. It comes from the people. Simply electing a government does not bestow genuine legitimacy or prevent tyranny. In The Federalist Papers,James Madison frequently cites the Republic of Venice as an example of elected absolutism. Though they had invented the tools that made capitalism possible, the Venetian Republic remained an absolutist tyranny.

But eventually the value of limited liability in commerce and trade migrated to governing philosophy and provided the model for a government with limited powers. People were much more willing to work hard and invest in a republic with enumerated powers than in a monarchy or empire, where cronies of the ruler could arbitrarily take away everything they owned—and there was no rule of law to appeal to. It was the infant United States that provided the model of a democratic republic with limited and enumerated powers. And the economy of the United States absolutely boomed because of the Constitution’s rule of law and limited government.

In the immortal words of America’s Declaration of Independence, governments “derive their just powers from the consent of the governed.” The Constitution of the United States, with its enumerated powers, and carefully constructed system of checks and balances, was formally ratified by the American people. Those limitations, and those checks and balances are the only legitimate government that the American people have ratified. Our current regime of incontinent spending is an illegitimate pretender to legitimacy.

Legitimate government is limited government. A willingness to let the people speak—to secure the consent of the governed—is a test and a proof of the legitimacy of our government.

Trust ‘We the People.’ Send This Amendment to the States.

The American Republic is now headed toward the worst fiscal collapse in history. If we do not take drastic action to reign in federal spending and reform our entitlement programs we could trigger a global economic collapse of unprecedented proportions. Providentially, the founders have provided us with exactly the tools we need to allow the American people to work their will on this issue and to impose a mandate for reorganizing our spending priorities.

As they demonstrated in the 2010 midterm elections, the American people have had enough, and they want to return to the model designed by the founders that made their nation the envy of the earth.

You, the members of this committee, can affirm the founders vision by letting the people work their will on this fundamental question. Legitimate government comes from the people. The founders knew it, and we know it. Now is the time to let We the People speak about reducing the size and scope of government.

Passing a constitutional amendment to require a significant reduction in spending is a huge undertaking. The founders intended that. But it can be done. If we listen to the people inside the Beltway we’ll never get out of the financial quagmire we’ve created for ourselves. It’s We The People, out in the States, who should decide these priorities. And they will decide them, if you report this bill to the full House.

Mr. Chairman, by reporting this bill and passing it through the House you will be communicating two vital messages to the people of this nation. You’ll be telling them

We agree that the substantive provisions of this amendment are necessary and appropriate; and
We believe that the American people—We the People—should be given the opportunity to be heard on these issues through state ratification of this amendment.
As Alexander Hamilton rightly said: “Here, sir, the people rule.”

Our government is legitimate.

Dr. Jim Garlow is the Chairman of Renewing American Leadership, Chairman of ReAL Action, and Senior Pastor of Skyline Wesleyan Church in San Diego, CA. He is heard daily on over 800 radio outlets nationwide. He founded and led the California Pastors Rapid Response Team, a group of several thousand pastors that was instrumental in the campaign to enact Proposition 8.

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