1976 312.9 307.0 308.0 323.7 320.2 319.9 355.9

Technically, the relationship among the growth of nominal and real GNP

where N is the annual growth rate of nominal GNP, R is the annual growth

rate of real GNP, and D is the deflator.

As defined in the proposed Amendment, the inflation rate, I, is measured as

I = N-R

Upon substitution, in the previous equation the following relationship is found:

I = (1+R) D

As an example, if real growth, R, is 3 percent per annum and the deflator, D, is 6 percent per annum, then I would be 6.18 percent. This is a difference of 0.18 percentage points. As a percentage, I differs from D by R. In the example, then, the difference is 3 percent. The more rapid the rate of real economic growth and the higher the inflation rate, the greater will be the difference between the two measures.

Given the error presumed to characterize current measures of the GNP deflator, a difference of such minimal magnitude in no way impairs the effectiveness of the Limit.

The "three percent" test incorporated into the further inflation

year gross national product. Finally, for comparative purposes, the data in terms of billions of current dollar outlays is presented in Table IX under the assumption that succeeding Congresses always approve spending equal to the outlay limit.

Section 1.

(b), 1st Sentence.

The inflation rate for a calendar year is the percentage

by which the percentage increase in nominal gross national product
to that calendar year exceeds the percentage increase in real
gross national product for that calendar year.

The concepts of nominal and real gross national product are established at least as well as outlays. As suggested above, the effectiveness of the Limit is not impaired if these concepts undergo periodic revision. As revision takes place, there only need be consistent computation of the percentage change in the old measures of nominal and real gross national product during the first year for which the new measures are available. Thereafter, the Limit would be fully operational in terms of the percentage changes in the new respective measures of gross national product.

The Drafting Committee recognizes that reliance on such concepts may place great stress on those charged with their implementation. However, the implementing procedures for estimating gross national product are well known among scholars. Attempts to alter these procedures for the purpose of subverting the Limit would come to be recognized quickly. Thereafter, the Courts would be responsible for enforcing procedures consistent with the estimating intentions which now motivate the collection of such data. Moreover, there is no other measure of the economy's capacity to sustain government spending which would not be subject to similar stress.

The definition of inflation employed in the Amendment produces a measure slightly at variance with the widely known "Consumer Price Index" and "GNP Price Deflator". Of the two, the GNP deflator is closest in concept.

Technically, the relationship among the growth of nominal and real GNP

and the GNP deflator is given by:

(1+N) = (1+R) (1+D)

where N is the annual growth rate of nominal GNP, R is the annual growth

rate of real GNP, and D is the deflator.

As defined in the proposed Amendment, the inflation rate, I, is measured as

I = N-R

Upon substitution, in the previous equation the following relationship is found:

I = (1+R) D

As an example, if real growth, R, is 3 percent per annum and the deflator, D, is 6 percent per annum, then I would be 6.18 percent. This is a difference of 0.18 percentage points. As a percentage, I differs from D by R. In the example, then, the difference is 3 percent. The more rapid the rate of real economic growth and the higher the inflation rate, the greater will be the difference between the two measures.

Given the error presumed to characterize current measures of the GNP deflator, a difference of such minimal magnitude in no way impairs the effectiveness of the Limit.

The "three percent" test incorporated into the further inflation

limitation recognizes that errors may occur in measuring real versus nominal gross national product. Whether "inflation" actually is x% is of less consequence than the wide-spread perception of an inflation rate of x%. It is this perception which will be of significance in guiding the behavior of individuals. Since this perception is based largely on the relationship between nominal and real gross national product, it is appropriate to incorporate this measure into the Amendment.

The "three percent" test also is consistent with the historical behavior of the measures. The early 1960's were thought, popularly, to be characterized by "stable prices". During this period, the annual percentage change in the GNP deflator ranged between 0.9 and 1.8. Thus, three percent provides ample allowance for the price variations experienced during periods of stability.

Section 1.

(b), 2nd Sentence.

Total outlays include both budget and off-budget outlays,
but does not include redemptions of the public debt or
emergency outlays authorized under Section 3 of this Article.

Terms Used in the Budgetary Process (1977) identifies "outlays" as:

The amount of checks issued, interest accrued on most
public debt, or other payments; net of refunds and reim-
bursements. Total budget outlays consist of the sum of
the outlays from appropriations and funds included in
the unified budget, less offsetting receipts. The outlays
of off-budget Federal entities are excluded from the unified
budget under provisions of law, even through these outlays
are part of total Government spending. Federal outlays are
recorded on the "cash basis of accounting"--with the exception
of most interest on the public debt, for which the "accrual
basis of accounting" is used.

"Refunds" are identified as:

The return of an advance or the recovery of an erroneous
disbursement from an appropriation or fund account that is
directly related to, and a reduction of, previously recorded