Balanced Budget Amendment a ‘Phony’ Deficit Solution

Balanced Budget Amendment a ‘Phony’ Deficit Solution


Having proven conclusively that they could not care less about balancing the budget when they are in power -- reserving their deficit concerns  solely for times when Democrats are in power -- Republicans are nevertheless hoping that their support for a balanced budget amendment (BBA) to the Constitution will fool people into thinking they are fiscally responsible on Election Day. But if they are, in fact, serious about amending the Constitution to require a balanced budget, it’s a terrible idea.

It’s hard not to be cynical about the Republicans’ motives. They know that most Americans are justifiably concerned about the enormous budget deficit and rising debt levels. But Republicans also know that most Americans are opposed to cutting vital spending or raising taxes to close the deficit, so they don’t dare offer any meaningful program for actually balancing the budget. Republicans likely asked their pollsters what polled well and sounded like a serious response to the deficit problem, and what wouldn’t force them to support anything politically unpopular. The pollsters pointed to a balanced budget amendment.

The idea of a balanced budget amendment to the Constitution has been kicking around for many years. Here are the key provisions of the latest version, H.J. Res. 1, which has 180 sponsors in the House:

Section 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a roll call vote.

Section 2. The limit on the debt of the United States held by the public shall not be increased, unless three-fifths of the whole number of each House shall provide by law for such an increase by a roll call vote.

Section 3. Prior to each fiscal year, the president shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which total outlays do not exceed total receipts.

Section 4. No bill to increase revenue shall become law unless approved by a majority of the whole number of each House by a roll call vote.

Section 5. The Congress may waive the provisions of this article for any fiscal year in which a declaration of war is in effect. The provisions of this article may be waived for any fiscal year in which the United States is engaged in military conflict which causes an imminent and serious military threat to national security and is so declared by a joint resolution, adopted by a majority of the whole number of each House, which becomes law.

Note that legislation usually passes when a majority of those voting vote “yea.” But when there is a requirement that a majority of the “whole number” of each chamber must support a measure, it means there have to be 261 votes in the House and 60 in the Senate, regardless of how many members actually vote. It’s a sneaky way of raising the bar without appearing to do so.

Now, let’s look at some of the practical difficulties with this extremely rigid approach to federal budgeting.

1. It will take forever to get an amendment enacted by Congress and approved by three-quarters of the states, if it can be done at all. Back in the 1980s, Republicans expended enormous effort to get such an amendment but could never muster the two-thirds majority necessary in both houses.

2. The simplistic amendment being proposed − the budget must be balanced except in times of war − was rejected by most Republicans in the 1980s on the grounds that it would likely force a tax increase, which is by far the easiest way to bring the budget into balance quickly. Instead, they favored some sort of spending limitation amendment. Furthermore, a balanced-budget amendment would pretty much make it impossible to ever cut taxes.

3. It’s one thing to require a balanced budget when starting from a position of balance or near-balance. It’s quite another when we are running deficits of over $1 trillion per year for the foreseeable future. Even if we were not in an economic crisis and fighting two wars, a rapid cut in spending of that magnitude would unquestionably throw the economy into recession just as it did in 1937.

4. It’s doubtful that BBA supporters really understand the composition of federal spending. In fiscal year 2009, we would have had to abolish every discretionary spending program, including national defense, to balance the budget and that still wouldn’t have been enough without higher revenues. We would have had to cut more than $300 billion out of Medicare and Social Security as well.

5. A BBA would force the federal government to make economic recessions worse. Since federal revenues fall and spending rises automatically in economic downturns, it would force spending cuts and tax increases at precisely the point when the economy is reeling, potentially turning a modest downturn into a depression.

6. There is no explanation for how a balanced budget amendment would be enforced. Perhaps Republicans just assume that public opinion will be sufficient. But the reality is that for such an amendment to be operational and not just a meaningless expression of intent,  there has to be a point in the budgetary process when the federal courts can enjoin spending or force tax increases. This is obviously a very bad idea in principle, but it’s also impractical. As a legal matter, we would have no way of knowing that the budget was in fact unbalanced until the fiscal year had ended. Even a federal court can’t make people give back federal funds that have already been paid out for interest on the debt, Social Security and Medicare benefits, wages and salaries for government workers, payments for goods and services, etc. Thus a balanced budget amendment of the sort Republicans propose is effectively unenforceable.

7. In practice, Congress operates primarily on the basis  of budget estimates provided by the Congressional Budget Office and the Office of Management and Budget. Many seemingly obvious terms like “revenue” and “outlay” lack a legal definition. Consequently, key decisions about whether a budget is balanced or not will be in the hands of government bureaucrats.

8. Finally, I can easily foresee the U.S. in a perpetual state of war to avoid the necessity of balancing the budget. This being the case, Republicans should ask themselves if they really want the Constitution of the United States to be treated in such a frivolous manner. If we pass an amendment that we know in advance is unenforceable, doesn’t that debase the Constitution itself?

The best case for a constitutional balanced budget requirement is that it would constrain vote-buying by politicians by making the cost of tax cuts and spending explicit, rather than hidden behind the veil of deficits. Even if there is nothing especially important about balancing the budget annually as an economic matter, the discipline imposed by the belief that it is important, even if mistaken, may have important value. Nobel Prize winning economist  Paul Samuelson, whose views were generally on the liberal side, once explained why this is the case:

“I think there is an element of truth in the . . . superstition that the budget must be balanced at all times. Once it is debunked,  [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency.”

One of the things that got this country’s public finances seriously on the wrong track was the idea that there was an implicit limit on deficits imposed by the political system. Hence, tax cuts would necessarily “starve the beast” by forcing spending cuts. This idea was plausible in the 1970s, but unfortunately has been proven beyond doubt by 30 years of experience to be completely wrong. In practice, there is no limit to deficits beyond those imposed by financial markets.

Space prevents a fuller explanation of why a constitutional balanced budget requirement is a bad idea and just an election year ploy by Republicans to avoid explaining how spending should be cut or taxes raised to actually achieve budget balance. I have posted references to serious analyses of a BBA at (“Bartlett’s Notations ”).