Taxes: Budget Wars


The war over a balance-the-budget constitutional amendment has begun. The rattle of political musketry can be heard from the plunging Pacific coastline to the fever-swamps of Washington, D.C. Events are moving inexorably toward a final, earthshaking battle. And the battleground will be the presidential campaign of 1980.

The balanced-budget amendment is not a very new concept. The National Taxpayers Union has been pushing the project for several years now. National polls have been taken throughout the 1970s gauging the public's support of such a measure. The people have backed it with a gusto that virtually no other issue can approach: 78 percent in early 1976, 81 percent in mid-1978, 78 percent again in early 1979.

Now, with California Gov. Jerry Brown having staked out the amendment as possibly the central issue of his 1980 presidential campaign, the juggernaut is finally rolling, and everyone's choosing up sides. Because Congress has (of course) refused to even consider any of the balanced-budget proposals before it, the battle has widened to the question whether a constitutional convention should be called to draft an amendment. (Article 5 of the Constitution provides that if Congress opposes the will of the people, as in this case, a convention must be called if two-thirds of the states petition for it.)

In January 1979 a mere 22 of the needed 34 states had passed resolutions calling for an end-run around Congress. By the first week in April, New Hampshire had become the 30th state to join the bandwagon. In California, Brown battled the state legislature's Tammany Hall-like boss, House Speaker Leo McCarthy, who managed to kill a convention petition bill by strangling it in the House Ways and Means Committee. Nevertheless, the movement continued to grow, and President Carter in February organized a confidential task force specifically for the purpose of derailing the drive toward a balanced-budget amendment (and thus Jerry Brown's presidential ambitions).

What will the measure do for taxpayers? Basically, a constitutional amendment to force a balanced budget drives straight at the heart of the most vicious tax of all: inflation. Now, it should be understood that budget deficits do not in and of themselves cause inflation, but rather set up the conditions that draw forth that malaise.

It works this way: when the federal government runs gigantic budget deficits (as it has done every year but one since 1960), money is sucked out of the private market and into government coffers for the bureaucrats to dispense. Naturally, this is because tax receipts aren't enough to cover expenditures. That extra money has to come from somewhere. And that "somewhere" is borrowing. Going into debt. The process is achieved by the sale of government securities.

When too much capital is drawn out of the private market in this manner, a great hue and cry arises. If the bureaucrats have all the money, how do we build houses, finance expanded farming operations, erect skyscrapers, enlarge manufacturing capacity? We can't. The economy is driven toward a slowdown. Upward pressure increases interest rates as demand confronts a dwindling supply of capital. Politics takes hold. The Federal Reserve Board—for all its supposed political "independence"—is just about forced to expand the money supply. The alternative is economic slowdown, recession…disaster—for the politicians in power, that is.

Thus, repeated deficits inexorably draw forth the destructive genie of inflation. Looked at in a certain way, inflation is simply a method for politicians to take people's money, but without having to go on record in favor of increased taxes. No wonder they love to run budget deficits like they do! What a great way for our "leaders" to buy votes, even entire constituencies, and not pay any direct price. This, coupled with the obscenity of a "progressive" graduated income tax, spells happy times for bureaucrats, politicians, and tax-eaters of all stripes. As inflation rages higher and higher, we're all forced to earn more money just to stay in the same economic position. But when our incomes go up—even as we struggle to maintain the same standard of living—government steals a progressively greater portion of our money. While the tax-eaters prosper and grow "progressively" fatter.

Do we need a constitutional amendment to force a balanced budget? Observe the furor right now, which is on the national scene what Proposition 13 was on the California scene (where the bureaucrats and other special interests screamed and threatened and attempted wholesale reprisals against the taxpayers). The big names are all weighing in on one side or the other. Reagan and the conservatives generally favor the balanced-budget amendment but oppose a constitutional convention, fearing all sorts of unwanted changes (a groundless fear, as it turns out, since the resulting proposals must then be okayed by three-fourths of the states). All the "liberals," special interests, and other State-worshippers are of course maniacally opposed to any such move. They know what it could do to their very special, privileged status.

On the good guys' side: Jerry Brown, who is staking his 1980 presidential aspirations on the issue; former Federal Reserve Chairman Arthur Burns; former Secretary of the Treasury William Simon; "Senator Sam" Ervin (now retired) of Watergate fame; and a host of US senators and representatives.

On the bad guys' side: predictably, Jimmy Carter and his raft of state functionaries; Nobel Laureate economist Paul Samuelson; former Council of Economic Advisors Chairman Walter Heller; political pundit John Kenneth Galbraith; most congressional leaders, Republican and Democratic; and most of the big establishment media (not one of Time magazine's Board of Economists, for instance, is in favor of a balanced-budget amendment).

Wafflers include Nobel Laureate economist Milton Friedman, who would rather see a spending-limitation amendment but will doubtless opt for a balanced-budget amendment in the face of nothing at all, and Alan Greenspan, former Council of Economic Advisors chairman, who in February and March was reported to oppose the balanced-budget amendment, then in April came out "with great reluctance" in favor of an amendment as "the only way in which we can permanently curb" deficit spending.

What will the final outcome be? The battle is still building. Congress, reluctantly kicked toward holding hearings on the balanced-budget concept, is adopting delaying tactics, hoping that the budget balancers will lose momentum. The Senate had one belated hearing in early March, then recessed for weeks. The House Judiciary Committee held the first hearings in late March, with 68 different measures before it, then quit until later in the spring.

The best bet is that the issue will be decided in the presidential campaign, specifically the Democratic primaries, where Carter and Brown will battle it out. It's hard to suggest that the struggle could ultimately be lost, but nastier things have happened. My personal guess is that within one and a half years we'll have a balanced-budget amendment presented for the states to ratify. The good guys' side will be immeasurably helped by the elevation of the debate to presidential campaign proportions. With tremendous media opposition, Jerry Brown will have a squeaker—victory or defeat—against Carter.

But the balanced-budget amendment will emerge victorious, either way.