A Constitutional Convention Poses Grave Risks

July 16, 2014 at 4:33 pm

The idea of convening a constitutional convention to propose a balanced budget amendment or similar amendments raises grave problems, as we explain in a new paper.  A number of states have passed resolutions calling for such a convention, and proponents of a constitutional convention are targeting more states in an effort to obtain the 34 states needed to call one (see map).

A balanced budget amendment poses serious risks in and of itself.  But, as a number of legal experts across the political spectrum have warned, a convention could open up the Constitution to broader radical and harmful changes.  Such serious concerns are justified, for several reasons:

  • A convention could write its own rules.  No constitutional convention has been called since the 1787 meeting that wrote the Constitution, and the Constitution provides no guidance whatsoever on what a convention’s ground rules would be.  This leaves wide open to political considerations and pressures such fundamental questions as how delegates would be chosen, how many delegates each state would have, and whether a supermajority vote would be required to approve amendments.  To show the importance of these issues, consider that if every state had one vote in a convention and the convention could approve amendments with a simple majority vote, the 26 least populous states, with less than 18 percent of the nation’s people, could approve constitutional amendments for ratification. 
  • A convention could set its own agenda, possibly influenced by powerful interest groups.  The 1787 meeting went far beyond its mandate.  Charged with amending the Articles of Confederation to promote trade among the states, the convention instead wrote an entirely new governing document.  A convention held today could set its own agenda, too.  There is no guarantee that a convention could be limited to a given set of issues, such as balancing the budget.  
  • A convention could choose a new ratification process.  The 1787 convention ignored the ratification process under which it was established and created a new process, reducing the number of states needed to approve the new Constitution and removing Congress from the approval process.  The country then ignored the pre-existing ratification procedures and adopted the Constitution under the new ratification procedures that the convention proposed.  Given these facts, it would be unwise to assume that ratification of the convention’s proposals would require the subsequent approval of 38 states, as the Constitution specifies.  For example, a convention might remove the states from the approval process and propose a national referendum instead, or approval by a simple majority of states. 
  • No other body, including the courts, has clear authority over a convention.  The Constitution provides for no authority above a constitutional convention, so it isn’t clear that the courts, Congress, state legislatures, or a President could intervene if a convention went beyond the language of the state resolutions calling for a convention or the congressional resolution establishing it.  Likewise, there may be no recourse if the convention altered the process for ratifying its own proposed amendments.  The Constitution has virtually no restrictions on the operations of a constitutional convention or the scope of the amendments that it could produce, and the courts would likely regard legal challenges to a convention as “political questions” that the judiciary does not wade into. 

States should avoid these risks and reject resolutions calling for a constitutional convention, and those that have already approved such resolutions should rescind them.

Click here to read the full paper.

Helping Renters Afford Their Homes

July 16, 2014 at 4:31 pm

Today’s New York Times “Room for Debate” forum asks “Should Housing Policy Support Renters More?”  It’s an important discussion since, as we explain in this chart book, federal housing policy is imbalanced in two ways.  It favors homeowners over renters, and it targets a disproportionate share of subsidies on higher-income households (see chart).

This is the case even though, as Henry Cisneros, former Secretary of the Department of Housing and Urban Development, points out, “the primary focus of federal housing policy should be to help those most in need.”  Need among renters is rising.  As MacArthur Foundation president Julia Stasch notes, “increasing rents, stagnant wages and inadequate federal support have made rental housing less affordable for more people.”  Low-income renters — including veterans, seniors, people with disabilities, and working families — are far likelier than homeowners and higher income households to need assistance to keep a roof over their heads and make ends meet.

Three ongoing policy debates offer opportunities to move in this direction:

  • Most immediately, Congress should provide more resources in 2015 funding bills to restore Housing Choice Vouchers and other low-income rental assistance that was cut as a result of sequestration in 2013.  Those cuts prevented thousands of low-income Americans from receiving the assistance they need to escape homelessness and housing instability, both of which have been linked to developmental, health, and education problems in children.
  • If tax reform moves forward, Congress should replace the mortgage interest deduction with a less-expensive, better-targeted credit that would trim subsidies for higher-income families while expanding them for middle- and low-income homeowners.  It should also use some of the savings from this reform to fund a new renters’ tax credit that would address part of the unmet need for housing assistance among the lowest-income renters.
  • If Congress reforms the housing finance system, it should use new financing fees for robust funding — like that provided in the reform bill that the Senate Banking Committee approved in May 2014 — to develop and rehabilitate affordable rental housing through the National Housing Trust Fund.

Balanced Budget Amendment Likely to Harm the Economy

July 16, 2014 at 4:21 pm

A number of states may soon call for a convention to amend the U.S. Constitution to require that the federal budget be balanced every year.  But a convention would pose serious risks, and a balanced budget requirement would be a highly ill-advised way to address the nation’s long-term fiscal problems.  It would threaten significant economic harm while raising a host of problems for the operation of Social Security and other vital federal functions, as we explain in a new paper.

By requiring a balanced budget every year, no matter the state of the economy, such an amendment would risk tipping weak economies into recession and making recessions longer and deeper, causing very large job losses.  Rather than allowing the “automatic stabilizers” of lower tax collections and higher unemployment and other benefits to cushion a weak economy, as they now do automatically, it would force policymakers to cut spending, raise taxes, or both when the economy turns down — the exact opposite of what sound economic policy would advise.  Such actions would launch a vicious spiral:  budget cuts or tax increases in a recession would cause the economy to contract further, triggering still higher deficits and thereby forcing policymakers to institute additional austerity measures, which in turn, would cause still-greater economic contraction.

For example, in 2011 one of the nation’s preeminent private economic forecasting firms concluded that if a constitutional balanced budget amendment had been ratified and were being enforced for fiscal year 2012, “[t]he effect on the economy would be catastrophic.”  If the 2012 budget were balanced through spending cuts, the firm found, those cuts would throw about 15 million more people out of work, double the unemployment rate from 9 percent to about 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.

The fact that states must balance their budgets every year — no matter how the economy is performing — makes it even more imperative that the federal government not also face such a requirement and thus further impair a faltering economy.

Such a constitutional requirement — which would be notably more restrictive than the behavior of the most prudent states or families — would also cause a host of other problems.  Requiring that federal spending in any year be offset by revenues collected in that same year would undercut the design of Social Security, deposit insurance, and all other government guarantees.  And it would raise troubling questions about enforcement, including the risk that the courts or the President might be empowered to make major, unilateral budget decisions, undermining the checks and balances that have been a hallmark of our nation since its founding.  It is not a course that the nation should follow.

Click here to read the full paper.

Medicaid Expansion Decisions Leading States Down Divergent Paths

July 16, 2014 at 2:24 pm

As a growing number of reports increasingly make clear, a state’s decision whether to expand Medicaid as part of health reform has real-life effects on its residents and its businesses.  In the 26 states and the District of Columbia that have expanded Medicaid (see map), the positive benefits are already playing out.  Here’s some of the latest information:

  • Hospitals are providing less uncompensated care.  In Arizona, hospitals reported that the Medicaid expansion is the chief reason for a 30 percent decline in the amount of uncompensated care they have provided so far this year, compared with a year ago.  The Colorado Hospital Association found a similar decline in charity care through April when it surveyed hospitals in 15 states that have expanded Medicaid and 15 that have not.
  • Medicaid expansion is driving large gains in health coverage.  A survey conducted by the Urban Institute finds that while the uninsurance rate is dropping across the country, states that have expanded Medicaid have seen a drop in the percentage of non-elderly adults who are uninsured by more than one-third — a 37.7 decline — while the uninsured rate fell by only 9 percent among states that haven’t expanded.  A survey from the Commonwealth Fund found a similar trend.

States can opt in to the Medicaid expansion at any time, allowing them to extend coverage to millions with the federal government picking up all of the cost of the expansion through 2016 (and nearly all of the cost in the years after), as we have written.  New Hampshire recently started accepting applications for its expansion, with coverage first available on August 15.

But states that refuse to expand leave a coverage gap, where people below the federal poverty line have income too high for Medicaid under prior eligibility rules but too low to qualify for federal subsidies to purchase coverage through the marketplaces.  This means we’re likely to see more stories as in Tennessee where, due to the coverage gap, a couple separated so the wife’s income would be low enough to maintain her Medicaid coverage.

House GOP’s IRS Budget Cuts: A Field Day for Tax Cheats

July 15, 2014 at 4:40 pm

The IRS has absorbed big cuts in recent years that have weakened enforcement and damaged taxpayer service.  The House Appropriations Committee passed a 2015 IRS budget that would cut the IRS even deeper.  But that wasn’t good enough for the full House, based on the cutting frenzy on the House floor over the last day.

The House approved a series of Republican amendments that, taken together with the cuts in the underlying bill, would shrink the IRS’s enforcement budget in 2015 by more than $1.2 billion relative to 2014 funding.  Under the House bill as it now stands, one-quarter of the IRS’s enforcement budget from this year would be gone.

The IRS’ core function is to collect revenue.  But these amendments would further stifle its ability to do that.  In its current form, the theme of the IRS funding bill seems to be:  If you’re an honest taxpayer, don’t call us because we won’t have the resources to answer the phone.  And if you’re a tax cheat, don’t worry because we won’t have the resources to call you.  As Rep. Jose Serrano (D-NY), the ranking member of the House Appropriations subcommittee that oversees the IRS, put it, “this will prevent the IRS from going after tax cheats… and from helping those who are attempting to obey the law.”

Rep. Paul Gosar (R-AZ), who advanced a House-passed amendment to cut $353 million from IRS enforcement, said, “I am ecstatic that the House of Representatives supported my efforts today to pass a vitally important amendment which will save hundreds of millions of taxpayer dollars…”

Actually, his amendment will do exactly the opposite.  When tax cheats get a pass, the deficit rises.  When, instead, Congress provides more money for enforcement, revenues rise and the deficit falls.

The House also approved an amendment by Rep. Bill Huizenga (R-MI) to cut enforcement another $788 million.

In total, the House Appropriations bill when combined with the Gosar, Huizenga, and other amendments cuts IRS enforcement more than $1.2 billion below this year’s $5 billion level — and cuts the total IRS budget by $1.5 billion, on top of deep cuts that Congress has enacted to the IRS budget since 2010.  Under the House bill as amended, total IRS funding in 2015 would be $9.8 billion, which is 19 percent below the 2010 level or 27 percent lower when adjusted for inflation (see chart below).

The cuts of earlier years have already wreaked serious damage on the IRS, as we recently explained:

  • ​The IRS has about 10,400 (11 percent) fewer employees than in 2010, even as its workload has grown.  For instance, the number of individual income tax returns has grown by an average of 1.5 million each year over the past decade.
  • ​The number of IRS staff devoted to enforcing tax laws has dropped by 15 percent since 2010.  As a result, the IRS is conducting fewer audits.  The annual audit rate for individual taxpayers is now below 1 percent, the lowest since 2006, and revenue collected through IRS enforcement actions has fallen by more than $4 billion over the past four years.  Weakening IRS enforcement ultimately hurts the entire budget:  every additional dollar invested in IRS tax enforcement activities from current levels yields $6 in increased revenue, the Treasury Department reports.
  • Taxpayer services have worsened.  For example, in 2013, a typical caller to the IRS waited about 18 minutes for an IRS representative to get on the line, and about 40 percent of calls were never answered.

The Administration was right to threaten to veto the House bill even before these irresponsible amendments.  When it considers IRS funding, the Senate should take a stronger stand for honest taxpayers by rejecting all cuts and giving the IRS the resources it needs to do its job.  The President should accept no less.