OPINION:
Recently, the Senate unanimously passed a resolution from Sen. Mike Braun that “commits to preventing the looming fiscal crisis in the United States.”
Mr. Braun, Indiana Republican, points to a dangerous landmark in federal spending. This year, federal spending on interest to service the national debt is projected to exceed spending on national defense. More than $1 trillion in U.S. debt is now held by the Chinese. The increased burden of interest payments is crowding out other federal programs, including defense spending.
In 2011, Michael Mullen, former chairman of the Joint Chiefs of Staff, warned, “I believe the single biggest threat to our national security is debt.”
Mr. Braun’s resolution calls for much-needed reforms in the budget process. Given that the Senate rarely passes anything unanimously, this is a remarkable achievement. But before we break out the bubbly, we must ask what the resolution accomplishes.
The unsustainable growth in federal debt reflects a fatal flaw in our fiscal policies. A commitment to debt sustainability in one Congress is not binding on a subsequent Congress. In the 1990s, Congress did in fact balance the budget and stabilize debt as a share of gross domestic product. In that era, called the “Great Moderation,” statutory fiscal rules were implemented, committing Congress to debt sustainability.
Over the past two decades, however, those statutory fiscal rules have been routinely circumvented and suspended, leaving us with unsustainable growth in debt. If our statutory fiscal rules are ineffective, we should learn from the experience of other countries that have successfully stabilized debt.
In the latter part of the 20th century, European countries experienced unsustainable growth in public debt. They have since enacted second-generation fiscal rules that have proved effective in stabilizing debt. The most successful of these is the “debt brake” in Switzerland.
The Swiss “debt brake” is a rule that requires the legislature to bring expenditures into balance with revenue in the near term. The rule caps the rate of growth in federal spending at the long-term rate of growth in the economy. If deficits are incurred, the legislature must use surplus revenue to offset deficits in the near term.
The effectiveness of the Swiss “debt brake” was revealed in recent years when expenditures did in fact exceed the spending cap. Over the past two years, the Swiss legislature cut spending on a wide range of government services and is now reviewing future budgets to ensure that they are in compliance with the spending cap.
The Swiss anticipate more cost-cutting in the future because of higher spending on pensions for older adults, children and defense. The U.S. can learn several important lessons from the experience with second-generation fiscal rules in Switzerland and other European countries.
The Swiss “debt brake” is a constitutional fiscal rule enacted through a referendum with support from 85% of voters. Fiscal rules incorporated in the Swiss Constitution are more effective constraints on spending. When politicians violate constitutional fiscal rules, citizens have recourse through the legal system to enforce them and hold them accountable.
The Swiss “debt brake” applies to all federal expenditures except Social Security. Separate rules for Social Security are designed to comply with the spending cap. The Swiss anticipate higher expenditures for pensions in the long term. They are engaged in long-range budget planning to address demographic change and other structural changes in the economy.
The recent cost-cutting measures excluded military spending, and the Swiss anticipate higher defense spending in future years. With the debt brake in place, increased defense spending requires cuts in nondefense spending. By stabilizing debt, however, the Swiss can better finance military spending in the long term.
The “debt brake” applies to cantonal (state) and municipal governments and the federal government in Switzerland. Over the years, the Swiss have enacted reforms to make subnational governments fiscally independent and accountable for enforcing their own fiscal rules. Recent cost-cutting measures include reductions in federal transfers to third parties, including cantonal and municipal governments and other institutions. This strong federalist system enables the federal government to get its own fiscal house in order.
• Barry W. Poulson is emeritus professor at the University of Colorado Boulder and a board member of the Federal Fiscal Sustainability Foundation.
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