Four Tricks of the Legislative Trade—and How They Deceive Us

      In enacting domestic legislation, members of Congress and presidents use four key tricks. This chapter will describe these tricks, how the nation prevented them for over a century and a half, and how Congress then came to get away with them.

      The Money Trick

      In the Money Trick, Congress enacts policies that will lead to such a huge gap between spending and revenue over the long run that it would not be possible for the government to borrow enough to make up the difference. So, future officials will have to close this fiscal gap with some combination of spending cuts and revenue increases. Nearly everyone will feel pain. Past and current officials have nonetheless used the Money Trick because it has let them get credit for enacting popular policies such as increases in benefits and cuts in taxes. Instead of closing the gap between total long-term spending and revenues that will be produced by continuing the current policies, Congress and the presidents leave the difficult choices needed to do so to their successors in office. As they put it, they “kick the can down the road.” This is the Money Trick.

      Using occasional deficit spending to stimulate a depressed economy is not part of the Money Trick, because, as I will show, deficits used solely for this purpose will not cause a painful fiscal gap over the long run.

      How the Nation Once Prevented the Trick

      To make members of Congress personally responsible for spending the people’s money, the Constitution gave to Congress alone the powers to appropriate money and impose taxes.¹ The taxes would make clear to us that the money Congress spends comes from us.

      Congress can, of course, raise less in taxes than it appropriates, leaving a deficit that it will have to finance by borrowing. The Constitution does not bar deficits. To the contrary, it authorizes borrowing to finance them. The country needed deficits and borrowing to win the Revolutionary War. Yet for more than a century after the Constitution was adopted, voters opposed deficits except in emergencies. The Constitution armed voters with the information needed to stop deficits that lacked popular support, requiring Congress to provide “a regular Statement and Account of the Receipts and Expenditures of all public Money.” Such statements would show how much cash the government had received and spent in the year, thus revealing whether Congress had run a deficit or surplus. Reflecting popular concerns, Congress ran surpluses to pay down the debt incurred in fighting the Revolutionary War and the War of 1812, and eliminated the debt entirely in 1835.²

      Since then, the government has had a debt, but its size was limited by opposition to deficit spending except in emergencies. This opposition lasted until the midtwentieth century. Indeed, as a candidate for president in 1932, Franklin Roosevelt criticized the deficits incurred under President Herbert Hoover and vowed to cut spending “to accomplish a saving of not less than 25% in the cost of the federal government.” Under President Roosevelt, Congress did end up running large deficits, but the nation faced grave emergencies—the Great Depression and then World War II. After the war, Congress ran some surpluses to reduce the debt despite a rise in unemployment.³

      The American government’s first blunt rejection of the traditional concept of fiscal responsibility came when President John F. Kennedy, following John Maynard Keynes, urged Congress to cut tax rates to increase demand for goods and services and thereby stimulate a sluggish economy, even though there already was a budget deficit and the sluggishness was not severe. Many economists agreed with the president. Eventually, Congress went along with this call for tax cuts because they were popular and the Keynesian argument had convinced many people that nonemergency deficits can be provident rather than prodigal.⁴

      Yet Lord Keynes’s prescription for stimulating a sluggish economy need not necessarily lead to a fiscal gap—that is, spending exceeding revenues over the long term—because, in his view, the deficit would be temporary. Indeed, Keynes prescribed cooling an overheated economy by running a surplus,⁵ which could readily offset a short-term deficit.

      How Congress Came to Get Away with the Trick

      Members of Congress ignored Lord Keynes’s prescription for dealing with an overheated economy because it would have required them to take the blame for either increasing taxes or cutting spending. Meanwhile, President Lyndon Johnson argued that the government could afford not only the lower taxes but also the increased spending to fight the Vietnam War as well as fund his Great Society program.⁶ Such “guns and butter” budgets helped overheat the economy under President Johnson, and then President Richard Nixon, leading to soaring inflation and later to a recession. Regardless of whether the economy was sluggish or overheated, whether the country was at war or at peace, deficits became routine for decades.

      Thus, these deficits were not the result of Keynesian economics but of Congress and the presidents having scrapped the traditional norm limiting deficits—no deficit except in emergencies—and put nothing but political expediency in its place. These politicians offered a future with higher benefits and lower taxes, while leaving their successors to deal with the consequences.