Be Careful of What you Wish For

In a July poll conducted by CNN, nearly three-fourths of all Americans favored a balanced budget amendment. In fact, 49 state constitutions have long contained language requiring an annual balancing of the budget. Although specific Amendment language has not been crafted, Congressional Republicans insist that any amendment ensure (a) total expenditures do not exceed total receipts, and (b) tax increases must be approved by a two-thirds vote in both Houses of Congress. 

 
With the exception of financing WWII, prior to President Reagan past administrations were fairly effective in keeping annual deficits in check. Even FDR cut spending in the midst of the Great Depression – causing a double dip recession – in order to reduce annual federal deficits. 

 
While the proposed amendment may not have stopped the Reagan administration from cutting tax rates – in the belief that lower tax rates would boost the economy such that tax revenues would actually rise –it would have made it next to impossible for President Reagan, and later Presidents Bush and Clinton, from raising taxes to bring the resulting deficits under control. President Reagan’s substantial increase in defense spending- which arguably led to the end of the cold war- may not have been possible. 

 
If the amendment had been in place President Bush, would have to have (a) been forced to limit the size of his tax cuts, (b) found it extremely difficult to pursue wars in Afghanistan and Iraq, and (c) been precluded from increasing Medicare coverage to include prescription drugs.
President Obama’s stimulus program would have been impossible. If fact, as the recession deepened, the federal government, like all of the states, would have been forced to cut back substantially on spending to cover the decline in tax receipts and increase unemployment outlays. Today unemployment would be substantially above current levels. 

Are Republicans – who strongly back this Amendment – throwing the baby out with the bathwater? The requirement of a two-thirds Congressional majority for tax increases is a game-changer when it comes to the role played by the federal government. It is one thing to argue that Americans must pay for the services they wish to receive, it is another matter altogether to tie the hands of future voters. The first argues for fiscal responsibility, the second locks in the social policy preferences of the far right. If future generations decide on a greater role for the federal government and are willing to pay for it, than they should be allowed to do so. The two-thirds requirement for tax increases makes this highly problematic.
I’m also against the one size fits all aspect of the proposed amendment. Many if not most economists ascribe to the principle that budgets should be balanced when the country is at full employment, running a slight surplus during the best of times when tax receipts are particularly high and a deficit when substantial people are out of work. Substantial borrowing would only be permissible when future generations – who must repay the debt- are made better off as a result. A defensive war could be financed by borrowed funds, for example, in order to secure America’s future. Government spending of borrowed monies to limit the impact of an economic recession would also be permissible since the impacts of substantial economic downfalls carry well into the future. 

Instead of pushing for an Amendment, why can’t Congress force itself to act responsibility? They actually sought to do so beginning in 1990 when PAYGO statutes were put into effect. PAYGO compelled that any new Congressional spending or tax changes not add to the federal deficit. Under PAYGO, if you wanted to pass a new initiative you either had to increase taxes or cut the budget somewhere else. Similarly, tax cuts had to be balanced by spending cuts. Seems to me this would work today as well, as long as there were allowances for defensive wars and dealing with economic downturns. Continued self-policing, however, requires continued resolve. In 2002 the Republican controlled Congress allowed PAYGO statues to expire, paving the way for budget-busting tax cuts, wars, and the Medicare prescription drug plan. Only in 2007 – when the damage was done – were PAYGO statues reinstituted by the now Democratically-controlled House of Representatives. (Notably, Obama-care meets PAYGO requirements.) 

 
The far right, in the name of fiscal responsibility, offers up an amendment that will also severely limit the ability of present and future generations to deal with challenges they may face and to put into place programs they may prefer. Before Americans embrace this Amendment they should be aware of its full implications. In so doing, they may opt for using the ballot box to hold Washington responsible.