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America Leads France to Adopt a Balanced Budget Amendment


The agreement to force Congress to have an up or down vote on a Balanced Budget Amendment is the cornerstone of re-establishing America as the world leader in sound economic policy. For decades, America’s small government model was internationally respected as being supportive of higher levels of economic growth. But that image died after Republicans gained domination of the Presidency, Senate, and the House in 2002 and ramped up outlays in every direction – increasing spending by 90% and the national debt by 150% in just nine years.

This irresponsible action gave cover for politicians around the world to join in on the spending bash. But with the American public now favoring a Balanced Budget Amendment to the Constitution by 74% according to the most recent CNN poll; Congress and the President will be forced to either approve an Amendment, or suffer the over-whelming wrath of voters in the next election. Following America’s re-born economic leadership; President Sarkozy of France just proclaimed he will run for re-election on a platform in support of a French Balance Budget Amendment.

America has long been the envy of the world. With 5% of the earth’s population, America still controls 25% of the entire world’s GDP. Since 1871, the U.S. has grown its economy rather consistently at about 3.47% per year compounded, compared to less than 2% for other developed nations. One of the keys to that victory has been the U.S. remaining in the bottom 10% of tax burdens percentages of developed nations – with 25% tax burden as a percentage of GDP. But according to the International Monetary Fund (IMF) the explosion of deficit spending means either tax rates must rise to the French and German average of 38% or spending must be cut.

American businesses have been planning for the advent of higher corporate taxes by continuing to outsource production to lower tax platforms, such as Mexico with its 17.5% tax burden as a percentage of GDP. This explains why Mexico’s unemployment rate has fallen to 4.9 percent, while joblessness has risen to 9.4 in the U.S. Mexican Consul General Carlos González Gutiérrez responded to questions about why less Mexicans are now entering California illegally:

“It’s now easier to buy homes on credit, find a job and access higher education in Mexico; we have become a middle-class country.”

Americans have a long history of forcing their government to live within their means. Every state in the U.S., except Vermont, has some form of balanced budget amendment. The Oregon kicker not only mandates a balanced budget, but also requires any tax collection surpluses of more than 2% of revenue must be refunded back to the taxpayers. The “deal” to raise the debt ceiling requires both houses of Congress to vote on a Balanced Budget Amendment to the Constitution between September 30 and December 31, 2011. Article V of the Constitution specifies that if the legislatures of two-thirds of the states petition Congress for a constitutional amendment, then Congress must call a convention for proposing that amendment. Since April 29, 1975, there have been 32 state legislatures submitting to Congress a Balanced Budget Amendment. In December 2008, the Ohio legislature considered making Ohio the 33rd state to petition for a Balanced Budget Amendment, but narrowly decided against it. I believe the high visibility of an open vote in Congress on the Amendment will stir enough additional state legislatures to petition Congress to force a convention. Opposing the Amendment at a convention will be politically suicidal for many Senators and House members.

The French, with their AAA rating, had felt immune from the Europeans sovereign debt crisis, but credit rating agencies recently threatened their downgrade. French borrowing costs jumped to 27% above German borrowing costs – level not seen since the collapse of Lehman Brothers. With a 7% of GDP deficit and 81.7% of GDP debt; the IMF cautioned France is the least stable of the remaining six triple-A-rated euro zone countries. The IMF also warned that with tax rates already amongst the highest in Europe, France’s only option was for the government to reduce its spending to meet its fiscal targets, particularly on pensions and healthcare.

With President Nicolas Sarkozy gearing up for French presidential elections next April and a downgrade disaster looming; the President joined the American band wagon and announced his intention to push the French Parliament to write balancing the budget into the constitution — a move bitterly opposed by the opposition Socialist Party. The IMF responded that the balanced budget constitutional reforms would “help to unequivocally signal the authorities’ commitment to the adjustment path.” Perhaps the French Balanced Budget Amendment will turn out to be as attractive to French voters as American voters.

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