Speech On Boston Common

By John Lumbard.

  “In the last 75 years there’s been a dramatic change in our nation’s Congress.  Our legislators used to say and believe that they represented the interests of all Americans, and were working to do what what’s best for the nation as a whole.  Now they say that they “represent their constituents”, which you and I know is really just a euphemism for “bringing home the bacon”.  And they make no apology for this;  a few years back there was a giant billboard on route 93, just south of here, proclaiming that the local congressman’s constituents “get their fair share . . . and then some.”

Coleman Young, former mayor of Detroit, put up a billboard that was even more direct.  It simply said Vote For Coleman YoungBecause he brought home the bacon.”

Nobody took these billboards to mean anything other than “re-elect me and I’ll put cash dollars in your pockets”;  yet nobody seemed to care.  If those politicians had been billionaires, and promised to buy these votes with cash from their own pockets, the universities of Boston would have erupted in outrage.  Instead the schools sat quietly by, as politicians picked the pockets of their students—the taxpayers of the future—and distributed the cash to the voters of today. 

Some of the professors of these great universities still don’t get it.  They can’t connect the dots from Greece, to Portugal, to Spain, to Ireland, and to the United States.  And they won’t get it until California goes bankrupt, or the Chinese decide that they don’t want to lend us any more money—causing the interest rate we pay on our debt to rise to 10%.   That’s not so very hard to imagine—an interest rate of 10% on US Treasury bonds—but it would mean that Congress would have to come up with a trillion dollars a year just to pay the interest on the federal debt.

This year we’ll take in $2.2 trillion in taxes, and then spend $3.7 trillion.  I’ll say that again:  This year we’ll take in $2.2 trillion in taxes, and spend $3.7 trillion.

There are still people in this country who think that we can solve our budget crisis by simply cutting defense spending, and raising taxes on the very rich.  But the deficits are too big for that;  the entirety of our defense spending is just $650 billion dollars a year, and the total wealth of all our richest citizens—the Fortune 400—is only $1.4 trillion.  They couldn’t even cover the deficit for this year, if we took away all their money! 

The bigger issue is the growth of entitlement spending, which will overwhelm all other factors when the Baby Boomers retire.  The Boomers will stop paying taxes on the one hand, and start collecting Medicare, Medicaid, and Social Security on the other.  

Now, I have some good news about Social Security.  It’s NOT the big problem here.  We can fix Social Security by simply raising the retirement age and passing up a couple of cost-of-living increases—as long as we do it soon.  The longer we wait, the bigger the adjustments will have to be, until we start talking about the outright cuts that retirees are afraid of. 

No, the really big problems are Medicaid and Medicare.  Medicare (the program for the elderly) is funded by a 3% tax on everyone’s income that’s part of FICA, but that 3% isn’t going to be anywhere near enough.  Recently BusinessWeek reported that the shortfall over the next few decades (the unfunded liability for Medicare) is $23 trillion dollars—$291,000 per family— and that’s if we pay it right now and earn interest on the cash for all those years.  The unfunded liability of Medicaid (the program for the poor) is actually bigger.  It’s $35 trillion dollars. 

They used to say that Social Security was the “third rail” of politics;  like the third rail of subway line that carries a thousand volts of electricity.  But as I’ve just told you, it’s not that big a problem.  The real third rail of politics is the Medicare/Medicaid question, and nobody had ever touched it until Congressman Paul Ryan leaped onto the tracks a few weeks ago.

His hope was that his action would attract all the heat and thunderbolts, and allow other politicians to make quiet counter-proposals that would not cost them their jobs in the next election.  So Ryan jumped onto the tracks and touched the third rail, and on Wednesday the President got up to deliver a response.

He turned on the juice.

We’re a non-partisan organization, but I found that to be pretty discouraging.  And the rest of the President’s speech offered only modest budget cuts that would be spread over 12 years—and backloaded so that most of the budget savings won’t happen until long after 2016 when the President is out of office. 

And does anybody remember the President’s National Commission on Fiscal Responsibility?   What we’ve learned is that it’s not going to be politically possible to do this without locking Congress in the capitol building and telling them that they can’t come out unless they reach a deal of some kind.  Right now it’s easy and politically smart for a liberal politician to say that he won’t agree to spending cuts, and it’s easy for a conservative to say he won’t agree to any tax increases.  We’re not going to get a deal until we have a crisis.

So how about waiting for a crisis?  That’s the course we’re on now, but we’ll suffer all those cuts and tax increases, and then some.  If we wait for a crisis, we’ll roll up trillions in additional debt and pay a trillion dollars a year in interest on that debt.  This is not what the framers of our Constitution had in mind.  At all.  And this is why they gave us the power to amend the Constitution.

The good news is that—even though it’s easy for politicians to object to budget cuts and tax increases—it’s much harder, and politically risky, for them to stand up and say that they won’t even agree to the idea of balanced budgets.  That’s why 65% of American voters favor a balanced budget amendment to the constitution that would force congressmen to do their jobs, except in years of war or recession.   

This constitutional amendment will reassure all our foreign lenders that we’re going to balance our budgets a couple of years from now. Then we can start the battle over how the budget will be balanced. 

I find that objections to a balanced budget amendment come in several flavors.  There are the people who don’t actually want balanced budgets, because they fear that it would mean cuts in entitlement spending or higher taxes.  These wing nuts would rather sink the country than compromise on principle.  The other objection I hear is that it can’t pass, because amendments to the constitution require approval by two-thirds of each house of congress, and then ratification by three-fourths of the states.

It happens that in 1997 a balanced budget amendment passed the House with a 2/3 majority, and came within one vote of garnering a 2/3 majority in the Senate.  It can be done.  And if you think it would be hard to get it through 75% of the state legislatures, you need to know that 49 of our state legislatures MUST produce a balanced budget each year.  If they have to do it, I’m sure they’re not going to be terribly sympathetic to the idea that federal legislators shouldn’t have to do likewise.

If we had passed and ratified that constitutional amendment in 1997 our nation’s debt load would now be at least $5 trillion smaller, even if you assume that Congress would have voted, with a supermajority, to run deficits in 2009 and 2010, and in some of the war years.

The last thing you need to know is that there are FOUR proposals for balanced budget amendments in the Senate right now—and if one of them passes the Senate you can be sure that it will pass the House.  Senate Joint Resolutions 3, 4, 5, and 10 all call for a balanced-budget amendment to the constitution with a cap on federal spending.  Two of them would cap that spending at 18% of GDP, unless they could override with a supermajority vote. 

18% is the average amount of tax revenue that we’ve been able to collect in the last several decades.  The other two proposals would cap federal spending at 20% of GDP, which—aside from the years 1944, 1945, and 2000—is  the most that we’ve ever been able to collect in taxes, including the years in the 1970s when the top tax rate was 70%.  See Table 1.2, White House Budget Office.

Two weeks ago 47 Senators went to the microphone on CNN to say that these bills are the most important legislation in the country right now.  They need your help, because only one Democrat—Mark Udall of Colorado—has been listed as a co-signer of one of the four bills.  That’s a shame, because in the years that immediately followed the Bush tax cuts a very healthy supermajority of Democratic voters wanted to see a balanced-budget amendment passed.  And there is still substantial support; 12 months ago 40 Democratic congressmen from all parts of the country co-sponsored a balanced-budget amendment.

So I’m going to ask you to do two things.  The first is to contact your Democratic senator and ask him or her to support any one of these bills.  Just six more senators would lift these bills from obscurity and make them national news.  And I will guarantee you that if the Senate passes one of these bills the house will pass it too.   This could be the most important thing that you do, on the national scene, in your lifetime.

The second is to join Americans for a Balanced Budget Amendment.  It costs just $10, and you can sign up right now at our table, which is located on the right side of the bandstand.  I’ll meet you there in 3 minutes.”

If you missed that beautiful afternoon on Boston Common, you can join Americans for a Balanced Budget Amendment by visiting http://balanceourbudget.com/

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