Subcommittee Hearing on "Proposing an Amendment to the Constitution with Respect to
Taxation Limits" - March 18, 1997.
Testimony by Professor Michael Rappaport
Professor
University of San Diego School of Law
Thank you very much for the opportunity to testify today in support of the concept of a constitutional amendment that would require a supermajority to raise taxes. We will offer two major arguments in f favor of a supermajority taxation amendment in the abstract and then offer some brief thoughts about the H.J. Res. 62 -- the draft of such a constitutional amendment that is before us. We would be very pleased to work with your committee's staff as this amendment moves through the legislative process. It would be a pleasure to participate in such an important enterprise.
A constitutional amendment to require a supermajority to raise taxes will help correct the major problem of contemporary politics -- the ability of concentrated interest groups to obtain programs that benefit themselves at the expense of a diffuse and relatively helpless public. Second, such an amendment would also help restore the original Constitution's delicate balance between structures that protect individual rights and ensure economic growth and those that promote democratic governance. Thus we believe that a supermajority taxation amendment should be seen as an attempt to revive the original values of the Constitution rather than as a radical innovation.
The objective of the original Constitution was to establish a well functioning republic -- a concept which is not necessarily synonymous with government by a simple legislative majority on all issues. The Framers well understood that a legislative majority only imperfectly reflected the majoritarian will of the people as a whole.1Moreover, the Constitution was designed to optimize the protection of the people's individual rights as well as their political rights. In our republic, deliberative democracy is not the entire end of government but is also a means for advancing human liberties. 2 The Constitution's limitations on legislative and even popular majorities are apparent not only from the Bill of Rights but also from the entire structure of government. Bicameralism and the separation of powers make it difficult for mere majorities to pass legislation. By dividing powers between the federal government and the states, the original Constitution further restrained the powers of a majority of the national legislature. We believe that a constitutional amendment requiring a supermajority to raise taxes is completely in accord with the overall objectives of the original Constitution, because a supermajority rule will both advance the interests of popular as opposed to legislative majorities and protect the individual rights of property and enterprise.
One of the fundamental problems of modern democratic politics is that concentrated interest groups have more influence with legislators than diffuse groups, even if the diffuse groups
are a numerical majority.3 Public choice theory suggests, and observations confirm, that political entrepreneurs will therefore tend to favor a legislative agenda that provides benefits to cohesive and organized interest groups while imposing costs on the electorate as a whole. 4 our present budget crisis is in large measure a reflection of repeated instances of this dynamic. Legislators will trade votes to provide entitlements and other expenditure programs to numerous concentrated interest The taxes (or debt) required to pay for expenditures do not impose a very substantial constraint o groups.5 n such activity because the incidence of the taxes (or debt) can be dif fused over the entire population (and future generations if possible). Thus, a constitutional rule that requires a supermajority to raise taxes can be understood as a rough attempt to restore a more rather than less democratic balance between those adversely affected by<
taxes and those advantaged by expenditures. 6 It functions as a precommitment by the society not to go down a road that will make everyone worse off in the end as concentrated interests groups demand expenditures that beggar the nation as a whole- 7
Moreover, because taxes encroach on the right of each individual to enjoy the fruits of his labor, the amendment also attempts directly to facilitate the protection of liberty. The Framers themselves were intensely concerned to protect property rights of citizens. They believed that these rights were natural rights that inhere in each one of us and that respect for such rights would lead to economic growth and the progress of civilization. Therefore, the original Constitution provided substantial direct protection to property and enterprise through
such provisions as the Contracts Clause and the Takings Clause.8 Moreover, it provided indirect protection by establishing structures that would make it more difficult for government to expropriate the people's wealth. For instance, federalism encouraged regulatory competition between different regimes thus restraining the power of factions: if the regimes became too oppressive or too inefficient, individuals could always leave.9 The separation of powers and bicameralism raised the costs to factions of getting control of the entire government.10
Unfortunately, the constitutional protections for the rights of individual enterprise have largely disappeared in the last fifty years. The protections for property have been substantially curtailed. With the demise of any restraints an Congress' power under the Commerce Clause, federalism has been gravely weakened. 11 With the rise of the administrative state,
the separation of powers is a shadow of its former self.12 Therefore, there is a pressing need for structural amendments, like the supermajority taxation amendment, which would revive protections for the rights of individual enterprise. A society that constitutionally protects such rights is much more likely to enjoy long-term economic growth and prosperity.
Now let us turn to some specific concerns about the actual drafting of the amendment. First, we believe that the amendment would be improved by provisions requiring a balanced budget- An amendment that restricts tax increases without limiting debt might increase debt as political entrepreneurs move to meet the demands of concentrated interest groups by increasing debt -subject to a simple -majority rule -- rather than increasing taxes. An even more effective method of limiting the power of concentrated interest groups would be simply to require a supermajority for all new spending programs, other than those strictly necessary for national security. Nevertheless, even in the absence of provisions requiring a balanced budget or subjecting spending provisions to a supermajority vote, a supermajority taxation amendment would be beneficial, because restrictions on tax increases function, especially in the long run, to limit wasteful spending on behalf of concentrated interest groups.
While it might be argued that any reduced taxes will -merely be replaced with increased debt, this is not true. There are checks on Congress' ability to run large deficits; otherwise, Congress would lower taxes and run much larger deficits. Both taxes and debt are generally opposed by voters, but to different degrees and by different groups. Public choice theory suggests that if Congress is not otherwise constrained, it will finance spending with that combination of taxes and debt that minimizes the opposition to the program it passes. Any rule, such as a supermajority taxation amendment, that forces Congress to alter this combination should thereby increase the opposition to Congress' financing and spending program and therefore lead to less spending. in other words, if the amendment forces Congress to finance spending with larger deficits that are even more unpopular than higher taxes, this will induce Congress to spend less than it otherwise would have.
This theoretical argument is confirmed by political observation. Large deficits are cited particularly by the Republican majority as the primary reason to cut spending. Indeed, both supporters and critics of the Reagan tax cuts of the early 1980s have respectively celebrated and deplored the curtailment of government expenditure that the resulting deficits appeared to cause.13
Second, we believe that Congress should carefully consider the role of the President in the legislative process resulting in tax increases. As the draft of H.J. Res. 62 stands, it is unclear what, if any, role the President has in the process. The Framers had strong reasons for giving the President a veto in the legislative process, including the process that leads to tax increases: the President is uniquely the representative of the nation as a whole and his participation makes it harder for any single transient faction or coalition of factions to work their will in a moment of political passion. Moreover, his participation brings the opportunity for more deliberation- This is obviously true when he exercises a veto because then Congress must vote again to pass the legislation. But the mere potential of a veto forces Congress to take another powerful and sophisticated viewpoint into account throughout the process. 14 Therefore, we strongly recommend that the President be expressly provided with a veto in the process leading to tax increases. While we do not recommend a particular numerical supermajority for a supermajority tax amendment, it would be wise to require an even greater supermajority majority to pass a tax increase over a presidential veto. For instance, if the strategy while Moynihan did not).
congressional supermajority stayed at two thirds, the veto override majority might be three quarters.
Third, H.J. Res. 62 appears to exempt customs and other taxes on foreign goods. We strongly believe that the amendment should require a supermajority to raise all taxes, whether domestic income taxes or tariffs on imported goods. Tariffs are harmful to the economy because they raise the prices of foreign goods for individuals and businesses in the United States. Moreover, tariffs are often supported by domestic firms and other special interests who desire protection against foreign competition. Indeed, if the amendment is not applied to customs, then it is likely that taxes on imported goods will increase as Congress seeks to raise funds in the one area where a supermajority is not required.
Finally, we also have a suggested change in the language of H.J. Res- 62. At present, the amendment requires a supermajority to pass a bill that would "increase the internal revenue. Under this language, it -might be argued that bills which solely contained certain tax reductions, such as a decrease in the capital gains tax, would require a supermajority if the reduction would increase government revenues. This disturbing result could be avoided by redrafting the amendment to require a supermajority either to increase tax rates or to expand the base of a tax unless the bill is determined at the time of adoption, in a reasonable manner prescribed by law, not to increase the internal revenue by more than a de minimis amount.
1 See, e.g., Akhil R. Amar, The Bill of Rights as a Constitution, 100 YALz L.J. 1131, 1147-52 (1991) (suggesting that the original purpose of the First Amendment was to permit popular majorities to bring pressure to bear on potentially unrepresentative national legislative majorities).
2 See John 0. McGinnis, The Partial Republican, 35 Wm. & MARY L. REv. 1751, 1760 (1994) (outlining manner in which Constitution is designed to protect individual rights).
3 MICHAEL T. HAYES, LOBBYISTS AND LEGISLATORS: A THEORY OF POLITICAL MARKETS 91 (suggesting that concentrated interests and costs are more likely to generate political and lobbying activity by organized groups).
4 See E. Donald Elliott, constitutional conventions and the Deficit, 1985 Duke L.J. 1077, 1090 (noting that government spending programs provide concentrated benefits while spreading the costs of programs over large and diffuse groups).
5. The scenario is thus a specific example of the well-known paradox of vote trading. See William H. Riker & Steven J. Brams, The Paradox of Vote Trading, 67 Am. PoL. Sci. REv. 1235, 1236 (1973) (stating that "[t]his paradox of (vote trading] has the property, that, while each trade is individually advantageous to the traders, the sum of the trades is disadvantageous to everybody, including the traders themselves.")
6 It might be argued that the supermajority rule would actually give special interests greater power because special interests would need only two-fifths of a house to block legislation. The effects of supermajority rules on special interests will depend on the circumstances. While supermajority rules in some areas could give special interests even greater power, this is not true of a supermajority taxation rule. It has been our argument, which public choice theory supports, that special interests have generally exercised their power to secure benefits that have required increases in government spending and taxes. Because the supermajority taxation rule makes it more difficult for special interests to increase spending and taxes, it thus impedes the power of special interests.
7 The Constitution is itself a societal precommitment to limit the range of future choices, because it is thought that choices prohibited by the Constitution will be generally socially disadvantageous. See Donald J. Boudreaux & A.C. Pritchard, Rewriting the Constitution: An Economic Analysis of the Constitutional Amendment Process, 62 Fordham L. REv. 111, 123 (1993).
8 See Jonathan R. Macey, Competing Economic Views of the Constitution, 56 Geo. WASH. L. REv. 50, 57 (1987) (suggesting that the purpose of the Constitution was to guide transactions from public to private markets because private markets are better at creating wealth).
9 Richard A. Epstein, Exit Rights for Federalism, 55 J. Law CONTEMN- PROB. 147, 149 (Autumn 1992) (arguing that federalism is a check an the monopoly of government power because individuals can leave).
10 Macey, supra note 8, at 76.
11 For a discussion of the collapse of federalism of powers, see Richard Epstein, The Proper Scope of the Commerce Power, 73 VA. L. REv. 1387 (1987).
12 For a discussion of the collapse of the separation of powers, see Gary Lawson, The Rise and Rise of the Administrative State 107 Harv. L. REv. 1231 (1994).
13 See Daniel Patrick Moynihan, Sick of Stockman and LaRouche, The New Republic, May 26, 1986 at 16 (observing that both Friederich Hayek and Moynihan believed that the deficits were deliberately created to force a great reduction in the size and activities of the federal government: Hayed approved of the
14 For a discussion of the President's veto power, see Steven R. Calabresi, some Normative Arguments for the Unitary-y Executive, 48 ARK- L- Rev. 23 (1995); Michael B. Rappaport, The President's Veto and the Constitution, 87 XW. L. REV. 735 (1993).
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