April 10, 2000
Constitutional Amendment Would Threaten Future Deficits And Pose Risks to Medicare, While Protecting Special Interest Tax Breaks
by Robert Greenstein
The House of Representatives is expected to vote April 11 on an amendment to the U.S. Constitution to require a two-thirds vote by the House and Senate for any bill that would raise federal revenues (H.J. Res. 94). This amendment would have far-reaching effects.
- The amendment would make it more difficult to address the large deficits forecast to return after the baby boom generation retires. The Congressional Budget Office and the General Accounting Office forecast that unless significant changes are made in current policies, deficits will return when the baby boomers retire in large numbers and will eventually climb to record levels. Last December, CBO's estimated that if all of the budget surpluses projected for coming years are saved and used to pay down debt with none of these surpluses used for tax cuts or higher spending levels deficits still will return by 2028 and climb to more than four percent of the Gross Domestic Product by 2050 and a stunning 24 percent of GDP by 2070.(1) Deficits of that magnitude are unprecedented in our nation's history for periods other than a war or severe economic downturn.
If, as is likely, some of the projected surpluses are used for tax cuts and discretionary programs, deficits will return sooner and climb higher. The deficits we may confront in the decades after the baby boom generation has retired are projected to be so large that we will eventually need to consider stern deficit reduction measures that include both reductions in programs and increases in revenues.
The proposed constitutional amendment would erect barriers, however, that would make such measures difficult to enact. It could prove extremely difficult, if not impossible, to amass the two-thirds majorities the constitutional amendment would require to pass major deficit reduction packages that contain a combination of program reductions and revenue-raising measures.
Consider, for example, the measures the nation took in the 1980s and 1990s to move from substantial deficits to budget surpluses. Between 1982 and 1997, six major deficit reduction measures were enacted. Five of these six measures included a combination of tax increases and spending cuts, with President Reagan signing three of these five measures into law and Presidents Bush and Clinton each signing one. Despite bipartisan support for four of these five measures, none received a two-thirds majority in both houses. (See box below.) Had the proposed constitutional amendment been in effect during this period, the chances are high that substantial budget deficits would still be with us today.
- The amendment could lead to a proliferation of unproductive and unwarranted tax breaks that drain revenue and result in larger deficits or deeper cuts in basic programs than otherwise would be necessary. A two-thirds majority would be required for any legislation that raises tax revenue, including legislation that curbs special-interest tax loopholes and uses the proceeds to reduce or prevent budget deficits or to meet a pressing national need. It would take more votes to close a tax loophole engineered by a powerful interest group than to cut Social Security, Medicare, education programs, programs to combat crime and drugs, veterans programs, or any other area of expenditure. Decisions as to how to shrink threatened deficits and apportion the sacrifice or to pay for policies addressing urgent needs would not be made on a level playing field. Yet data from the Joint Congressional Committee on Taxation and the Congressional Budget Office show that tax expenditures consume substantially more of the federal budget than Social Security or defense.
Moreover, the amendment would be likely to intensify special-interest efforts to secure tax breaks. It would take a simple majority to enact a new tax break, but once enacted, it would take a two-thirds vote to remove it or scale it back, regardless of how egregious the tax break's effects turned out to be. If a tax measure passed that was intended to be revenue-neutral, but clever tax lawyers, accountants, or corporations found ways to turn the measure into a large tax shelter as sometimes happens it would take a two-thirds majority to narrow or close the shelter and stem the revenue loss Congress had never intended in the first place.
Votes for Recent Legislation that Raised Taxes
Between 1982 and 1993, five pieces of legislation that raised significant revenue were enacted. Presidents Reagan signed the first three of these measures, while President Bush and President Clinton each signed one. All five failed to secure a two-thirds vote on the House floor.
In passing the Tax Equity and Fiscal Responsibility Act of 1982, a measure crafted in substantial part by Senator Bob Dole, the House vote was 226-207. When the House considered its version of the 1983 Social Security rescue plan the following year, the vote was 282-148. The vote for the 1987 budget reconciliation bill, a product of bipartisan negotiations that contained both spending cuts and revenue increases, was 237-181, while the 1990 budget agreement passed by only 228 to 220. The 1993 budget agreement passed by a slender 218-216 vote.
During this period, only one measure that raised revenue secured a two-thirds vote, the 1989 reconciliation bill. The 1989 bill was a minor measure. It did relatively little to reduce the deficit and contained only very small revenue increases. The revenue increases in all five of the pieces of legislation that failed to secure a two-thirds vote exceeded the level of revenue increases in the 1989 bill.
- The amendment would make it harder to restore long-term solvency to Social Security and Medicare because it would require a two-thirds majority for any Social Security and Medicare reform packages that would increase Social Security or Medicare tax revenues as part of a larger effort to shore up these programs. Because the long-term financing shortfalls in these programs are very large, it is likely to take a mix of benefit reductions, other program changes, and increased revenues to restore long-term solvency to these programs. The proposals that all three factions of the recent Social Security Advisory Council advanced, including the factions that favored private accounts, contained tax-raising measures. In addition, the Social Security legislation that Senators Gregg and Breaux and Reps. Kolbe and Stenholm have introduced includes a measure that raises tax revenues, as does the Social Security bill that Senators Moynihan and Kerrey have introduced. All such bills would need two-thirds majorities to pass.
Provisions that raise revenues for the Social Security trust funds by extending Social Security coverage to all new state and local employees, some of whom are not currently covered, would require a two-thirds vote. Reforms that help bolster Medicare's finances by raising Medicare premiums on affluent seniors also would be likely to require a two-thirds vote; Medicare does not have information on beneficiaries' current incomes, and the only practical way to collect increased premiums from higher-income seniors would be through the income tax system. Moreover, the House parliamentarian ruled in 1995 that a proposal contained in that year's Republican budget to raise Medicare premiums on affluent seniors could be considered a tax increase.
Furthermore, Medicare's long-term financing hole is so deep that a modest payroll tax increase perhaps a fraction of one percent of wages may be needed in combination with substantial program reforms if solvency is to be restored. With a two-thirds requirement, such provisions probably would become virtually impossible to pass.
Measures to restore solvency to Social Security and Medicare solely through benefit reductions would not require a two-thirds vote, but the benefit reductions that would be needed to restore solvency almost certainly would cut too deep for such proposals to be politically viable. For example, the controversial Medicare plan that Senator John Breaux and Representative Bill Thomas put forward last year would significantly reduce projected Medicare spending. Yet it would close only a modest fraction of the long-term gap between projected Medicare expenditures and anticipated revenues. That even so controversial a proposal as the Breaux-Thomas plan would close no more than a modest fraction of the long-term Medicare financing gap makes clear that some revenues will be needed to help achieve Medicare solvency. For these reasons, a politically diverse panel of Medicare experts the National Academy of Social Insurance convened last year concluded unanimously that the provision of new revenues for Medicare must be part of the debate on long-term Medicare solutions.(2)
In short, the constitutional amendment would likely make Social Security and Medicare's problems more intractable. The amendment would make it still more difficult to overcome gridlock in this area.
- The amendment would likely tilt fiscal policy in ways that benefit powerful interests and the wealthy at the expense of ordinary Americans. The amendment would make it much harder to rein in special-interest tax expenditures and new tax shelters that develop, since doing so would require two-thirds majorities. Such tax breaks disproportionately benefit the affluent and large corporations. By contrast, basic programs could continue to be cut by a simple majority vote. Federal programs tend primarily to benefit the middle class and the poor.
Scaling back the child care tax credit for those with incomes exceeding $100,000 would require a two-thirds vote, but cutting federal funding to states for child care programs that primarily serve families with incomes under $30,000 would take a simple majority vote. Curtailing the business meals and entertainment tax deduction sometimes known as the "three martini lunch deduction" would take a two-thirds vote, but scaling back federal support for school lunches for low- and moderate-income children would require a simple majority vote. The amendment consequently would be likely to lead over time to a further widening of income disparities between the wealthy and other Americans. These gaps already are at, or close to, their widest levels since the end of World War II. They are wider here than in any other western, industrialized nation.
- The amendment would make it virtually impossible to pass proposals that would raise excise taxes on tobacco products to discourage smoking and use a portion of the proceeds for smoking cessation programs, health research into tobacco-related illnesses, payments to tobacco farmers who otherwise would be injured by the legislation, and initiatives in the child care, education, or health care coverage areas. Legislation of this nature also would require a two-thirds vote.
- The amendment is inconsistent with the basic principles of majority rule that are at the heart of American democracy; it reflects an approach the nation's founders rejected. The founding fathers rejected requiring a supermajority to raise revenues when they wrote the Constitution, in part because their experience during the 1780s in attempting to raise revenue under the supermajority system the Articles of Confederation established proved unworkable.
These issues are analyzed in more detail in a separate Center analysis, "The Constitutional Amendment to Require a Two-thirds Supermajority to Raise Taxes," which is posted to /archiveSite/4-12-99tax3.htm
1. See Congressional Budget Office, The Long-Term Budget Outlook: An Update, December 1999.
2. Members of the National Academy of Social Insurance Study Panel on Medicare Financing, The Financing Needs of a Restructured Medicare Program, September, 1999.