Federal debt in the United States has been growing at an unsustainable rate for more than half a century under both Republican and Democrat administrations. Over this same period, Switzerland has relied on debt brakes at all levels of government to reduce and stabilize debt burdens. The Swiss rely on fiscal rules incorporated into their Constitution to limit government taxes, spending, and debt accumulation. At the federal level, the debt brake was incorporated into the Swiss Constitution through referendum in 2001, with support from 85 percent of the electorate. Since 2001, the debt brake has allowed the Swiss federal government to cut the ratio of debt to national income roughly in half.
The debt brake was first enacted at the cantonal level, and only more recently at the federal level. Switzerland has a strong federalist system that places much of the power to tax and spend at the cantonal and municipal levels. Institutions of direct democracy, including initiative and referendum, give citizens a strong voice in public policy—especially fiscal policy.
The outcome has been prudent fiscal policies designed to constrain government taxes, spending, and debt. Over time, Swiss citizens have become accustomed to exercising control over government through direct democracy. Elected officials know that if they violate the fiscal rules, they will be held accountable by voters. Citizens exercising the power of direct democracy have gained greater confidence in fiscal policies pursued at all levels of government; Swiss economists refer to this as dynamically growing credence capital.
Some economists are critical of the Swiss debt brake, and question whether such fiscal rules could work in the United States. They argue that Congress has consistently circumvented statutory fiscal rules now in place, and that there is every reason to expect them to do the same with Constitution-based fiscal rules, such as the debt brake.
But, in the United States, constitutional and statutory fiscal rules have been effective at the state and local levels for centuries. These rules include balanced budget requirements, debt limits, taxing and spending limits, rainy day funds, and budget process rules such as gubernatorial veto.
With these constitutional and statutory fiscal rules in place, state and local governments have, in fact, balanced their budgets, reduced taxes and spending, and stabilized debt burdens. A few states, like the federal government, are on a path toward debt default. Zombie states like Illinois and New York are the exceptions that prove the rule.
When fiscal rules are incorporated into state constitutions, such as Colorado’s Taxpayer’s Bill of Rights (TABOR) Amendment, which was enacted through citizen initiative in 1992, the rules have proven to be effective over the long run. In fact, it is fair to say that most states have also experienced dynamically growing credence capital.
There are several lessons that the federal government can learn from the experience with fiscal rules in the states. First, a strong federalist system is required to restore fiscal sanity. This requires devolution of federal programs to state and local governments. The experience with welfare reform reveals that state and local governments can deliver these services more efficiently than the federal government.
Devolution must be accompanied by greater fiscal autonomy, shifting tax and expenditure powers from the federal government to state and local governments. Fiscal autonomy for state and local governments would restore the strong federalist system envisioned in the Constitution.
New fiscal rules must be incorporated into the Constitution to constrain fiscal policy at the federal level. Swiss-style fiscal rules have proven to be effective at both the state and federal levels, and Incorporating these fiscal rules into the Constitution would prevent Congress from behaving in a fiscally irresponsible manner. If legislators fail to balance the budget and stabilize debt, they would face the wrath of citizens who voted to incorporate the fiscal rules into the Constitution. Moreover, citizens would then have recourse through the legal system to enforce the fiscal rules.
Citizens have the power under Article V of the U.S. Constitution to address federal fiscal irresponsibility. Two-thirds of the states (34 states) can call a convention of states to propose fiscal restraints on the federal government. Any resulting fiscal responsibility amendment proposed by a convention must be submitted for ratification by three-quarters of the states (38 states), preferably by a vote of the people, as was the case with the 21st Amendment.
Recent research discovered that more than the required number of states called for such a convention of states in 1979, yet Congress failed to act. Legislation introduced in Congress this year (H.C.R. 24) would require Congress to fulfill its obligation under Article V of the Constitution to certify and count state resolutions and call the convention.
Non-profit organizations are now working with state legislators in an appeal to the Supreme Court for a Declaratory Judgement that would require Congress to record and count the applications. State legislators and citizens must now step up and demand that Congress set the time and place for such a convention as required under Article V. That may be our only recourse to restore dynamically growing credence capital and fiscal sanity.
The time for action is now.
Barry W. Poulson ([email protected]) is professor emeritus at the University of Colorado Boulder.