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the Founding Fathers. As late as the 1950's, Congress justified aid to highway constructions and to education in terms of national defense: The National Defense Transportation Act and the National Defense Education Act. Such justification in terms of the basic Federal responsibility and provide for the national defence would be considered an anachronism in the 1970's.
The now characteristic Federal deficit represents another quasiConstitutional change. Even into the 1950's deficit financing was considered acceptable only in time of war. Peace-time deficits were taken as clear evidence of fiscal irresponsibility on the part of the Congress. Whether or not the evidence remains as clear today, planned deficits in years good or bad signify Congressional rejection of the fiscal rule which served America for the greater part of its life.
With erosion of these founding fiscal disciplines, no one should be surprised that the Congress has been unable to exercise the restraint necessary to secure a return to and to maintain stability. The problem lies in the institutional setting which has emerged in the face of Constitutional changes. The appropriate response is itself a change in the Constitution.
I would urge upon the Congress submission to the states for ratification Senate Joint Resolution 56, the Federal Spending Limitation Amendment.
C. AUSTIN BARKER, Financial Consultant, Loeb Rhoades, Hornblower &
Co., New York
ROBERT BORK, Professor of Law, Yale University; former United States
JAMES M. BUCHANAN, Professor of Economics; Director, Center for the
Study of Public Choice, Virginia Polytechnic Institute.
Washington, D.C., and Sacramento, California; former
DAVID Y. COPELAND, Tennessee State Representative; Vice President,
National Tax Limitation Committee.
MILTON FRIEDMAN, Senior Research Fellow, Hoover Institution, Stanford,
California; Nobel Laureate, Economics.
ROSE FRIEDMAN, Economist.
ALLAN GRANT, President, American Farm Bureau Federation.
JAMES M. HALL, Attorney, Los Angeles; former Secretary, California
Human Relations Agency.
C. LOWELL HARRISS, Professor of Economics, Columbia University, New
York; Consultant, The Tax Foundation, Inc., New York and
ROBERT B. HAWKINS, JR., President, Sequoia Institute (public policy
research); formerly Woodrow Wilson Fellow, Smithsonian
Institution, Washington, D.C.
President, Alexander Hamilton Life Insurance Co., Farmington
California, Los Angeles.
Administration, University of Michigan, Ann Arbor,
ROBERT A. NISBET, Resident Scholor, American Enterprise Institute,
Washington, D.C.; Albert Schweitzer Professor of Economics,
Columbia University, New York. WILLIAM A. NISKANEN, Chief Economist, Ford Motor Co., Dearborn, Michigan;
former Professor, Graduate School of Public Policy,
University of California at Berkeley. GLENN PASCALL, Executive Vice President, Washington State Research Council,
Olympia, Chairman, National Taxpayers Conference Conmittee
on Tax/Spending Limitations.
Rochester, New York.
U.S. Information Agency.
and Claremont Graduate School, Claremont, California;
the Center for the Study of Law Structures.
National Federation of Independent Business, San Mateo,
DONALD L. TOTTEN, Illinois State Representative, Schaumburg; Vice President,
National Tax Limitation Committee.
LEWIS K. UHLER, President, National Tax Limitation Committee.
AARON WILDAVSKY, Professor, University of California at Berkeley (on leave);
former President, Russell Sage Foundation, New York; former Dean, Graduate School of Public Policy, University of
California at Berkeley.
former National Fellow, Hoover Institution, Stanford,
(8.J. Res. 56, 96th Congress, 1st session) Joint Resolution: Proposing an amendment to the Constitution to protect the people of the United States against excessive governmental burdens and unsound fiscal and monetary policies by limiting total outlays of the Government
Resolved by the Senate and House of Representatives of the United States of America in Congress 288embled (two-thirds of each House concurring therein), That the following article is hereby proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States within seven years after its submission to the States for ratification:
“ARTICLE "SECTION 1. (a) Total outlays of the Government of the United States during any fiscal year shall not increase by a percentage greater than the percentage increase in the nominal gross national product during the last calendar year ending prior to the beginning of such fiscal year. If the inflation rate for that calendar year is more than 3 per centum, the permissible percentage increase in total outlays during such fiscal year shall be reduced by one-fourth of the percent. age by which the inflation rate exceeds 3 per centum. "(b) For purposes of subsection (a)—
“(1) the inflation rate for a calendar year the percentage by which the percentage increase in nominal gross national product for that calendar year exceeds the percentage increase in real gross national product for that calendar year; and
(2) total outlays includes 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. "SEC. 2. When, for any fiscal year, total revenues received by the Government of the United States exceed total outlays, the surplus shall be used to reduce the public debt of the United States until such'debt is eliminated.
"SEC. 3. Following declaration of an emergency by the President, the Congress may authorize, by a two-thirds vote of both Houses of Congress, a specific amount of emergency outlays in excess of the limit prescribed by section 1 for the current
"SEC. 4. The limit on total outlays prescribed by section 1 may be changed by a specified amount by a three-quarters vote of both Houses of Congress. The change shall become effective for the fiscal year following approval.
"Sec. 5. For each of the first six fiscal years beginning after ratification of this article, total grants to State and local governments shall not be a smaller fraction of total outlays than in the last three fiscal years beginning prior to the ratification of this article. Thereafter, if such grants for any fiscal year are less than that fraction of total outlays, the limit on total outlays prescribed by section 1 for such fiscal year shall be decreased by an equivalent amount.
"SEC. 6. The Congress may not by law require or authorize any agency of the Government of the United States to require, directly or indirectly, that State or local governments engage in additional or expanded activities without compensation equal to the necessary additional costs.
“Sec. 7 This article shall apply to the first fiscal year beginning after the date of its ratification and to each succeeding fiscal year.
“Sec. 8. The Congress shall have power to enforce this article by appropriate legislation.".
Stanford, Calif., October 30, 1979.
DEAR SENATOR BAYR: I am submitting herewith a statement in support of a constitutional amendment to limit federal spending which I should appreciate your inserting in the record of the Hearings of the Subcommittee on the Constitution on November 1, 1979. Sincerely yours,
Senior Research Fellow. Enclosure.
PREPARED STATEMENT OF MILTON FRIEDMAN SENIOR RESEARCH FELLOW,
HOOVER INSTITUTION STANFORD UNIVERSITY AND PROFESSOR OF ECONOMICS, UNIVERSITY OF CHICAGO
The government of the people has been spending a larger fraction of the income of the people than the people wish to spend. Government spending at all levels, federal, state and local, currently sums to more than 40 percent of the national income, and two-thirds of that spending is by the Federal Government. Yet is there any doubt what the answer would be to a Gallup Poll that asks the public: “Are you getting your money's worth for the more than 40 percent of your income that is being spent on your behalf by government officials?"
A less direct but no less decisive answer has been given by the nationwide tax revolt, the adoption of constitutional amendments by
five states to limit spending by state and local governments, the movement under way to adopt similar amendments in most other states, the request by 30 state legislatures for a Constitutional Convention to enact an amendment requiring a balanced federal budget and the declining approval rating of the Federal Government relative to other institutions.
Excessive government spending, the associated excessive rate of monetary growth and the resulting inflation are not the product of evil men seeking to destroy our free society—though that will be the effect if these developments are not checked. They are the result of a defect in our political structure: the absence of any effective limit on total government spending or on the exercise of government power in the economic area comparable to the fixed budget each of us faces in conducting our private affairs or to the bill of rights incorporated in our Constitution that the government faces in a different area of policy.
Such limits were provided at an earlier date by the gold standard, an unwritten constitutional prohibition on deficit budgets and Supreme Court interpretation of "interstate commerce,
," "due process" and similar terms in the Constitution in such a way as narrowly to limit federal action in the economic area. These limits have now been swept away. They cannot be stored in their initial form. But some replacement is desperately needed.
There is wide support for a constitutional amendment to repair what we regard as a constitutional defect. All of us who support such an amendment have the same objectives: to limit the growth of government, to end the inflationary rollercoaster that has been carrying us to ever higher rates of inflation, to make the government of the people more responsive to the will of the people, to assure individuals greater freedom to conduct their own affairs. We differ on tactics. Some of us favor an amendment to limit government spending; others, to require a balanced budget; others, to alter the procedures for adopting appropriation measures; and so on.
That said, I want to devote the rest of this statement to a brief explanation why I favor the limitation of spending rather than the requirement of a balanced budget.
First, limiting spending goes directly to one major objective: stopping the steady expansion of government and its absorption of an ever larger fraction of our income.
Requiring a balanced budget is an indirect approach to this objective. It can be effective if, and only if it is accompanied by an unwritten monetary constitution that effectively limits monetary growth. Otherwise, the politically easiest way to achieve a balanced budget is to inflate at higher rates.
The true tax load on the people is measured by what government spends, not by those of its receipts labeled taxes. The so-called "deficit" is also a form of taxation-either the hidden tax of inflation or an even more subtle hidden tax on wealth. In addition, there are forms of hidden taxation other than inflation or borrowing—as witness the recent support by Congressman Ullman and Senator Long for a value added tax whose one real political attraction is that it is a hidden tax that can be substituted for visible taxes that stimulate protest.
The requirement of budget balancing in many a state constitution has not prevented state government spending from rising as a fraction of income.
Second, it is technically far more difficult to devise a satisfactory budget balancing amendment than a satisfactory spending limitation amendment. No one proposes daily budget balancing, or weekly, or monthly. Why annual? But any attempt to devise a system of cyclically balanced budgets runs into either of two obstacles: a loophole that renders the whole exercise futile, or a cumulation of small adjustments into a required major adjustment.