Thomas Jefferson once stated during the formation of the U.S. Government: "We might hope to see the finances of the Union as clear and intelligible as a merchant's books, so that every member of [the] Union, should be able to comprehend them to investigate abuses, and consequently to control them." Thus, fiscal reporting, accountability, and control were valid original objectives with respect to the U.S. Government. They are still valid today. Needless to say, however, they are not being achieved today.
With respect to financial reporting, the nagging question has existed for years as to whether one should really believe the numbers that the U.S. Government reports. For years, the U.S. Government reported a budget deficit and an increasing national debt. Then, in the year 2000, the U.S. Government seemed to overflow with cash and reported huge surpluses to the public that were almost too much to believe. It was a veritable rags to riches story. Then, based on these reports, and over-flowing optimism about the future ability to pay down the debt, a tax cut passed. By 2002, however, the financial and economic environment tumbled bringing again into question the financial reporting and fiscal responsibility of the U.S. Government.
The U.S. Government has never complied with typical financial reporting standards commonly found in private industry and also in a fair number of states and municipalities. Given the lack of standards and reporting, there is simply no way for the public, or anyone else, to judge the accuracy of the numbers that the U.S. Government hands to us. Additionally, Congress does not exhibit any sort of fiscal control whatsoever.
Separating powers, and applying federalism concepts, can cure these problems. First, the appropriate powers should be separated from the President and Congress. This includes the power to report financial results and the power to manage the debt.
As to the reporting of financial results, a specific person should be granted the power to direct the reporting effort, sort of a National Accountant or Controller. This person does not perform the same tasks as the GAO or the executive budget office. This person reports financial results to the public, the states, to Congress and to others who may request reports. Additionally, standards must be adopted. The National Controller should publish monthly, quarterly, annual, and bi-annual reports that comply with governmental accounting and reporting standards. A proposed amendment to implement these suggestions follows:
AN AMENDMENT TO ESTABLISH A NATIONAL CONTROLLER
SECTION ONE. The National Controller is an executive authority independent from the President. The National Controller shall be assisted by at least three Assistant Controllers, or as many as the Congress deems appropriate. The National Controller shall hold office for a period of six years. The Assistant Controllers shall hold office for a period of no longer than four years and during such staggered terms as the Congress shall set. The National Controller shall be nominated by the President and, except for the first National Controller, shall have completed at least one term as an Assistant Controller. The Assistant Controllers shall be nominated by the President and shall possess such qualifications, as the Congress shall require. The National and Assistant Controllers shall be appointed by the President, with the advice and consent of the Senate. The National and Assistant Controllers may be removed from office by Congress through impeachment and conviction for lack of good behavior, which includes, but is not limited to, a failure to perform the duties of the office. All proceedings and meetings of the National Controller shall be open to the public.
SECTION TWO. The National Controller shall maintain the accounting records for the United States and shall report the financial results of the United States. The National Controller shall have the power to set financial accounting and reporting standards after receiving the advice of the President, the Congress, and such other organizations and persons that the Congress deems appropriate. Reporting of detail transactions shall be subject to such limited exceptions and regulations that the Congress may make for the protection of national security. Congress shall pass no laws limiting the reporting of summary results.
SECTION THREE. The National Controller shall report summary and detail financial reports on a monthly, quarterly, annual and bi-annual basis, by fund as appropriate, to the public, the States, Congress, and the President, and others persons and entities who may request reports, all in conformance with reporting standards. The National Controller shall issue such other reports as the National Controller may deem necessary or as the Congress shall require.
SECTION FOUR. All financial transactions engaged in by the United States, including, but not limited to, budgets, taxes, encumbrances, expenses, payments and receipts, shall be transmitted to the National Controller on at least a daily schedule. The National Controller shall have authority to assure the uniformity and integrity of all procedures and systems, which collect and transmit transactions to the National Controller, including, but not limited to, such procedures and systems utilized by all other branches of government. The financial reports shall be subject to such audits and reviews that Congress shall require. No encumbrances, expenses or payments shall be made without having first a budget for that item.
Once the financial reporting has reached a credible state, the states and the public can more objectively evaluate the financial health of the U.S. Government.
Second, to improve fiscal responsibility, the debt management function should also be separated. Particular attention should be paid to the national debt. Again, during the reports of surpluses, promises of paying off the national debt abounded. At the same time, however, Congress and the President were clearly looking for ways to spend the money on other alternatives rather than pay down the debt. The states and the public recognize that the magnitude of the national debt is a serious problem. It is a political issue that is bandied about by Presidents and other elected officials with little or no substantive progress being made on its funding or pay-down, despite numerous promises over the years from both sides of the aisle. It impacts every walk of life, particularly the social security program. The following shows the national expenditures and debt over approximately 70 years (numbers are in billions):
Year |
Expenditures |
Debt |
1929 |
$2.7 |
$16.9 |
1939 |
9.0 |
40.4 |
1949 |
42.0 |
252.8 |
1959 |
91.7 |
284.7 |
1969 |
191.3 |
367.1 |
1979 |
521.1 |
833.8 |
1989 |
1,143.6 |
2,857.4 |
2000 |
$1,790.0 |
$5,674.1 |
The debt management function should be removed from the executive branch and placed into an independent, non-political position, a national debt manager, whose sole job it is to fund or pay-down the national debt. A specific portion of the budget should paid over to the manager for the sole purpose of funding or paying down the debt. A proposed amendment to implement this follows:
AN AMENDMENT TO ESTABLISH A NATIONAL DEBT MANAGER
SECTION ONE. The Manager of the National Debt is an executive authority independent from the President. The Manager shall be assisted by at least three Assistant Managers, or as many as the Congress deems appropriate. The Manager shall hold office for a period of six years. The Assistant Managers shall hold office for a period of no longer than three years and during such staggered terms as the Congress shall set. The Manager shall be nominated by the President and, except for the first Manager, shall have completed at least one term as an Assistant Manager. The Assistant Managers shall be nominated by the President and shall possess such qualifications, as the Congress shall require. The President, with the advice and consent of the Senate, shall appoint the Manager and Assistant Managers. Congress may remove the Manager and Assistant Managers from office, through impeachment and conviction, for lack of good behavior, which includes, but is not limited to, a failure to perform the duties of the office. All proceedings and meetings shall be open to the public.
SECTION TWO. The Manager shall have the power to manage, pay the interest on, fund, and pay down the national debt, and shall have other powers, but related only to the management and pay down of the national debt, as the Congress deems appropriate. All transactions shall be transmitted to the National Controller for reporting. Congress may limit the authority of the Manager, and vest such authority in the President, over the debt of any specific governmental program, which has debt that is: (1) fully funded; and (2) the funding of which can only be utilized to pay down the debt incurred, or obligation created, by that specific governmental program. Where Congress has vested such authority in the President, the Manager shall retain the rights to audit and to compel compliance with these provisions and congressional requirements.
SECTION THREE. The Manager shall provide such other summary, consolidated, and detail debt management reports on a monthly, quarterly, annual and bi-annual basis to the public, the States, Congress, and the President, and others persons and entities that may request reports. The Manager shall also issue such other reports on the debt as the Manager deems necessary or as the Congress shall require. The debt management reports shall be subject to such audits and reviews that Congress shall require.
SECTION FOUR. Five percent of the national debt, or a greater percent as set by Congress, computed as of the date that any budget is signed into law, shall be allocated annually for the funding or pay down of the national debt. The President shall pay over to the Manager that amount and shall make payments to the Manager on at least a quarterly basis. The President shall pay to the Manager one-third of any budget surplus for the funding or pay down of the national debt. The surplus shall be computed, and thereafter paid over, every six months. These amounts shall be in addition to amounts needed to pay interest on the debt. Money received pursuant to this provision for the funding or pay-down of the debt shall only be used for the funding or pay-down of principal, and not for interest or other expenditures.
Third, even though a separation of powers is necessary, continuous state interaction is also essential in order to maintain some degree of control over the fiscal process. This can only be accomplished by a repeal of the 17th Amendment. By itself, without the check that the states can provide, as history shows, the congressional budget balancing process will fail. History proves that state interaction, as a check, is essential.
The state interaction referred to began in the 1970s when the states submitted applications for a constitutional amendment under Article V of the Constitution on the issue of a balanced budget. At the time that the hearings on the matter began in 1979, twenty-seven states had submitted applications for an amendment. By 1985, thirty-two states had passed applications. To fend off this pressure, Congress passed the Gramm-Rudman-Hollings Act to reduce the deficit spending. The federal courts, however, promptly declared part of the Act unconstitutional. Not long thereafter, Congress "slipped" the deficits mandated by the Act. Other factors, particularly the inability of the states to apply consistent and ongoing pressure to counteract the demand for new spending, caused the eventual circumvention of the Act.
Fundamentally, the states must provide consistent and ongoing interaction with the U.S. Government for anything to happen. The states' efforts regarding the balanced budget amendment demonstrate this notion. Consistent and ongoing interaction, however, can only be achieved by the repeal of the 17th Amendment.
Thomas Jefferson had a laudable objective. In his time, however, the U.S. Government was a fraction of its present size and its combined spending was substantially less than the states. Additionally, the states had the power to check the U.S. Government. To achieve that objective today, with the massive size of the U.S. Government, strong constitutional checks are required. Separation of powers, and notions of federalism, through the repeal of the 17th Amendment, will achieve that objective.
John MacMullin (john.macmullin@cox.net) practices law in Phoenix, Arizona. He has written extensively in the law literature on the 17th Amendment. See MacMullin J., "Amplifying the Tenth Amendment," 31 Ariz.L.R. 915 (1989).
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