USOFARN.COM: Don't be like Illinois, say no to a balanced budget amendment and instead focus on limiting spending

Welcome to the blog of Ulysses S. Arn Tea Party activist, Conservative author and Videographer

Don't be like Illinois, say no to a balanced budget amendment and instead focus on limiting spending

I have a warning to offer to my fellow conservatives, especially those in Congress, who are building an effort to pass a balanced budget amendment. Illinois has a state Constitutional provision calling for a balanced budget which has absolutely no meaning to the Democrat lead General Assembly or Governor Quinn.

Article VIII, Section II of the Illinois Constitution states in part.

"Proposed expenditures shall not exceed funds estimated to be available for the fiscal year as shown in the budget."

and

"Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year."

The state of Illinois has a budget imbalance of $13 Billion, an unfunded pension liability of roughly $70 Billion, a need to borrow $4 Billion to make payments to the states pension funds, and a backlog of unpaid bills of $8 Billion and growing.

To fix this mess the Illinois personal income tax rate of 3% will climb to 5%, meaning a family of four making $60,000 will pay $1,000 more in taxes this year(2011). At the same time the Illinois corporate tax rate will go up from 4.8% to 7%. Both tax increases are said to be temporary(completely sun-setting in 2025) and open to a full fledge return to the prior tax rates should state spending increase by more than 2% annually over the next 4 years. If you believe that Illinois's new higher tax rates are going to be temporary or repealed should spending not be reigned in, I have some beach front property in Colorado to sell you.

Governor Quinn, Speaker Madigan, and Senate President Cullerton believe those higher taxes will increase state revenue, but history shows that is all but certain not to happen. For example Maryland imposed a special tax on millionaires, 1/3 of them left the states tax rolls altogether, wiping out any revenue increases from the Maryland millionaires that stayed.

The Illinois Policy Institute has estimated that 250,000 jobs or more will leave the state due to the higher tax rates, keep in mind that as of November '10 Illinois had 641,000 people unemployed, and on top of that there are the individuals and families that may leave continuing the states depopulation.(Illinois has lost congressional seats in both the 2000 and 2010 census's.)

To make the employment situation even worse because of Illinois tax policy, an "Amazon tax" was passed days before the corporate and income tax hikes. This "Amazon tax" has already had a disastrous result as Rockton, Illinois based online retailer FatWallet.com has announced its serious consideration of packing up shop and moving its operations to another state because the "Amazon tax" will gobble up 30-40% of their revenue.

FatWallet will find several suitors not the least of which will be Wisconsin, which under new Governor Scott Walker plans on lowering its taxes and decreasing regulations to spur job creation. This is part of a statement from Gov. Walkers office announcing the installment of new "Wisconsin is open for business" signs along the badger states borders with Illinois and Minnesota.

""These signs proudly proclaim Wisconsin is open for business", said Governor Walker. "Along with the symbolic nature of these sings, there are going to be substantive changes to the way our state government treats job creators. The pro-growth initiatives I support stand in stark contrast to those policies being discussed in our bordering states. These signs are aimed Directly at job creators to make them aware that they are welcome here. As our neighbor states make it more difficult for private employers to create jobs, they can "Escape to Wisconsin."

As others have noted Illinois and Wisconsin's polar opposite approaches will tell a lot about which set of policies will work, high taxes and big spending(Illinois) or lower taxes and business friendly policies(Wisconsin). I'll save those waiting to see which will work and give you the answer, based on what history has shown, Wisconsin's approach will be copied, Illinois will continue a path to have it compared to Greece. One of those historical examples in Renoldus Magnus and his across the board tax cuts and pro-growth policies that lead the nation to create 19 million jobs in his 8 years in office, and doubled Federal revenue.

Let what is happening here in Illinois($13 Billion budget hole, higher taxes on everyone, and an exodus of jobs) serve as the prime example of why the Balanced Budget Amendment being contemplated in Washington D.C needs to be abandoned in favor of something more appropriate to curb the real problem, massive, out of control, unsustainable spending. The balanced budget amendment will not be the remedy some think it will be, as Illinois shows a balanced budget provision will easily allow tax and spend liberal Democrats to raise taxes on individuals, families and business, killing off the much needed creation of new jobs and forcing the people to do with less while the government and its bureaucracy keeps getting bigger and bigger.

So to Senators Mike Lee(Utah) and Mark Kirk(Illinois) and the members of the House who are backing the balanced budget amendment I have something better for your contemplation, something that everyone can find in Appendix B of the late great Milton Friedman's book Free to Choose, a Constitutional Amendment limiting Federal spending. Now that proposed spending limit amendment needs a few minor tweaks and updated slightly(this was crafted in 1979), but is still the perfect building block upon which to achieve the desired goal of reducing government spending and keeping it down. One addition the spending limit amendment that needs to be added is to require tax increase votes and votes to raise the debt limit/ceiling to be super majority votes.(3/5 or 2/3 of both chambers of Congress)(the harder to raise taxes the better)

The premise of the limited spending amendment is to cap government spending as a percentage of Gross Domestic Product. Current Federal spending levels are approximately 25% of GDP, so a 17-18% spending cap level would go a long way towards solving the Trillion plus dollar deficits the Obama administration projects the nation having from here to the end of time.

I am personally swayed by Dr. Walter Williams who points out that prior to FDR and the New Deal government spending as a percentage of GDP averaged less than 10%. So that should be the ultimate goal with a limited spending amendment, cap Federal spending now and as quickly as possible get to a 17-18% spending to GDP ratio(say within 4 years). I can easily come up with a list of hundreds of Billions of dollars to help reach that lower spending level. From there gradually continue whittling away at Federal Spending over a number of years(say 15) until the spending to GDP ratio is in line with the 10% level I am in favor of.

Now with such a hard spending cap controlling the Federal Behemoth, should the need arise for more spending the true and natural options will be used first and foremost, increase economic activity boosting total GDP or increase the tax base(i.e more people paying taxes) which happens when people go from being unemployed and become productive, tax paying, workers providing a product or service or skill that is wanted or needed. And since fewer people would be unemployed thus resulting in that person having a reduced, if not totally eliminated, need to receive government assistance, which allows for even less government spending. All around good things for everyone, except progressive liberal socialist Marxist Democrats.

To conclude here is the text of the original proposed Constitutional Amendment to Limit Federal Spending.

Section I. To protect the people against excessive governmental burdens and to promote sound fiscal and monetary policies, total outlays of the Government of the United States shall be limited.

A. Total outlays in any fiscal year shall not increase by a percentage greater than the percentage increase in nominal gross national product in the last calendar year ending prior to the beginning of said fiscal year. Total outlays shall include budget and off-budget outlays, and exclude redemptions of the public debt and emergency outlays.

B. If inflation for the last calender year ending prior to the beginning of any fiscal year is more than three percent, the permissible percentage increase in total outlays for that fiscal year shall be reduced by one-fourth of the excess of inflation over three percent. Inflation shall be measured by the difference between the percentage increase in nominal gross domestic product and the percentage increase in real gross national product.

Section II. 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.

Section III. Following declaration of an emergency by the President, Congress may authorize, by a two-thirds vote of both Houses, a specified amount of emergency outlays in excess of the limit for the current fiscal year.

Section IV. The limit on total outlays may be changed by a specified amount by a three-fourths vote of both Houses of Congress when approved by the Legislatures of a majority of the several States. The change shall become effective for the fiscal year following approval.

Section V. For each of the first six fiscal years after ratification of this article, total grants to States and local governments shall not be a smaller fraction of total outlays than in the three fiscal years prior to the ratification of this article. Thereafter, if grants are less than that fraction of total outlays, the limit on total outlays shall be decreased by an equivalent amount.

Section VI. The Government of the United States shall not require, directly or indirectly, that States or local governments engage in additional or expanded activities without compensation equal to the necessary additional costs.

Section VII. This article may be enforced by one or more members of the Congress in an action brought in the United States District Court for the District of Columbia, and by no other persons. The action shall name as defendant the Treasurer of the United States, who shall have authority over outlays by any unit or agency of the Government of the United States when required by a court order enforcing the provisions of this article. The order of the court shall not specify the particular outlays to be made or reduced. Changes in outlays necessary to comply with the order of the court shall be made no later than the end of the third full fiscal year following the court order.

And now the links.

Proposed balanced budget amendment-112th Congress

Illinois Constitution-Article VIII

Sen. Mike Lee(Utah) on Fox News about balanced budget amendment

Summary of Illinois tax hike

Illinois unemployment statistics

Chuck Sweeny(Rockford Register Star) on Wisconsin Gov. Walker and "open for business" signs

Chuck Sweeny(Rockford Register Star) Mark Kirk supports balanced budget amendment

Government spending to GDP historical graph

Illinois policy institute tax hike calculator

Illinois depopulation

Indiana, Wisconsin Governors happy with Illinois tax hike