ATR, Supermajorities, and Balanced Budgets

Americans for Tax Reform is an utterly misnamed organization at this point since its political efforts are now entirely aimed at preserving the utterly dysfunctional status quo of our public revenue system. Lobbying hard against removing ridiculous tax subsidies for ethanol was a low point. It's position on a supermajority requirement for raising taxes in a Balanced Budget Amendment is even lower.

This is how ATR explains things:

Washington has an overspending problem, not an under-taxing problem. Historically, outlays have averaged about 21 percent of Gross Domestic Product (GDP) while revenues have amounted to about 18 percent of GDP. Due to the Obama Administration and Congressional Democrats’ spending binge, outlays now average almost 25 percent of GDP, and are projected to stay around 23 percent in perpetuity.

Unless tax hikes are taken off the table, reckless lawmakers will increase taxes to pay for these new bloated spending levels, rather than bring spending in line with revenues. Any lawmaker serious about restoring American solvency cannot seriously vote for a BBA that does not include a super-majority requirement for tax increases. To pass a BBA that allows a tax hike by simple majority is to distract from the real problem of government spending, and leave taxpayers to bear the burden of foolhardy federal budgeting.

First of all, Washington does have an under taxing problem right now. Revenues are about 14% of GDP, well below the 18% historical average. Raising revenues back to 18% would cut the deficit in half. But, I digress.

A rule to require a supermajority vote in order to "raise taxes" means that a host of sensible, valuable, pro-growth, conservative ideas for, you know, tax reform effectively get taken off the table. Removing deductions, credits, and exemptions for special interests? Getting rid of the awful carried interest loophole for equity fund managers' pay? Generally moving to a flatter, fairer, simpler, more transparent tax system? Under any of these arrangements, someone's taxes will increase even if many people's tax liabilities go down. If we apply the ATR's interpretation of its so-called "Taxpayer Protection Pledge" to a constitutional provision requiring a supermajority vote to raise taxes, then the prospects of actually, you know, reforming the tax system in a meaningful way goes down the toilet.

Moreover, the temptation in Congress is not going to be to raise taxes in general but to raise taxes selectively to cover spending. So, the right approach is to include a provision that sets a maximum ratio of the highest marginal tax rates to the lowest marginal tax rate above a defined income threshold. For example:

In no case shall the highest total marginal rate of taxes on annual individual incomes imposed by the government of the United States be no greater than three times the lowest total marginal rate of taxes on annual individual income above $35,000 or its equivalent adjusted for inflation.

So, if the lowest total marginal income tax rate (the rate produced by combining collections from income taxes, Social Security taxes, Medicare taxes, etc.) [say on income between $35k and $50k] were 15%, the highest combined marginal tax rate could be no higher than 45%. And, if Congress wanted to raise the total marginal rate at the high end, they would have to raise the rate at the low end, too.

This rule would ensure that the costs of government are borne broadly by the American people so that efforts to increase the size and scope of government activities necessarily imply imposing real costs on electoral majorities. By extension, any "reckless" legislators who tried to support spending on less useful programs and services by passing the buck to taxpayers would quickly find himself out of a job. 

In contrast, an arbitrary supermajority threshold for tax increases doesn't really protect taxpayers. It just institutionalizes a mechanism that will build up unsatisfied demand for government services and programs that will, eventually, manifest itself as the unthinkable supermajority that imposes skewed tax increases along with its bursts of new government programming. Indeed, the supermajority rule for tax increases strikes me a sure-fire recipe for exacerbating the pathologies of the current fiscal mess in which the country finds itself.

The other provision utterly lacking in drafts of Balanced Budget Amendment proposals I have seen is a rule for spending in the absence of a new budget. Congress is legally obligated to pass a budget each year, and we see how well that works. Unless a BBA is judicially enforceable, i.e. courts can order new taxes or spending (which we really don't want to do) there is no mechanism to ensure that budgets actually balance and no accounting for spending that's not part of an official budget, like this year's government by continuing resolution.

For any fiscal year or part of a fiscal year for which Congress has not adopted a budget in accordance with the provisions of this Article,  nominal budget authorizations and actual rates of taxation for the last year in which a budget was adopted shall prevail.

This would establishes a constitutionally mandated "continuing resolution" provision that would hold spending at the previous year's level until a new budget is enacted.