Balanced Budget Amendment, or Bogus Blather for America

There is nothing quite so dangerous as a proposal clad in the verbiage of “common sense,”  and Nevadans have one appointed member of the Senate, Dean Heller, and one congressional candidate, Mark Amodei who are supporting one such plan.

Here’s Mr. Amodei on the matter: ” We need a balanced budget amendment. We need spending caps. We need super majority [votes] to increase taxes.”   [RalstonFlash]

Here’s appointed Senator Dean Heller: “It took took us 50 years to get where we are today. We know we’re not going to fix it in five years, we’re not going to fix it in ten years,” Heller said. “But at some point, let’s get this balanced budget amendment out there so this cost curve will start decreasing at some point.” [LVSun]

The currently fashionable palaver from the GOP, “Cut, Cap, and Balance” must have played well with some focus groups because the shorthand is all the rage in Republican circles — it is also BOGUS.  Let’s review:

#1.  A balanced budget amendment is NOT making the government run like a family or small business budget.  The Republican notion would have “outlays” equal revenues.  While this sounds like what small businesses and families might do, no families and small businesses actually DO this.  If they did there would be no small businesses with a line of credit from their bankers to cover the gap in the timing between when payroll must be met or suppliers paid before accounts receivable come in.   If families did this there would be no home mortgages, no credit cards, no student loans, and no automobile loans.

#2. A balanced budget amendment would not make the federal fiscal system the same as the states which must balance their books.  Not. So. Fast.  State governments are required to balance their operating budgets, they can still incur debt for capital improvements and investments.

#3.  A balanced budget amendment does not insure fiscal responsibility.  Remember how the Bush Administration accounted for the operational expenses for the wars in Iraq and Afghanistan?  The Administration simply didn’t put the military expenses in the budget, instead opting to categorize them as “emergency” or “supplemental.”   Expect more of this if a balanced budget amendment is ever enacted.

#4. A balanced budget amendment is like trying to steer your car using only the rear view mirror.   Budgets are built on projections.  There is no way to discern exactly what revenues have been collected, or the exact amount of expenditures, until the end of the fiscal year.  So, how – during the year – does anyone know if the budget is balanced or not?  If the budget is to be balanced using the previous year’s numbers, then how do agencies account for economic growth, economic decline, or even the cost of inflation?  [See Outside The Beltway for a more detailed explanation}

#5. A balanced budget amendment is fiscal tight rope walking without a safety net.   Let’s return to that family budget analogy for a second, with a common household financial problem.  The family has assumed, for the sake of the household budget, that the automobile will not require replacing for another five years, and the payments on the debt incurred will remain the same during that period.  This works as long as (a) the car doesn’t break down, or (b) the vehicle isn’t totaled in an accident.  If either of these happens, then the “budget is broken.”

#6.  Super-majorities required to over-ride the amendment in cases of emergencies are unrealistic, unnecessary, and not timely.   Although there were some ultra-conservatives who thought Louisiana should pay for its own clean up after Hurricane Katrina, most Americans were more appalled at the slow response  by the federal government at the time.  Some Americans felt the Obama Administration didn’t apply enough federal resources quickly enough when the BP Deep Water Horizon oil spilled into the Gulf of Mexico.  Now, imagine adding another layer of federal decision making to emergencies — in order to go over budget to meet these exigencies Congress would have to take a vote to fund relief efforts.  All this accomplishes is to further slow the responses down.

A second point should be made, IF supermajorities are relatively easy to cobble together in order to meet emergencies (or other contingencies) what’s the point of having the amendment at all?

And, that graph at the top?  What it demonstrates clearly is that the deficits we are currently seeing aren’t the result of “out of control” discretionary spending, but from the actions of automatic stabilizers which kicked in when the U.S. economy tanked — combined with the revenue lost from the Bush Tax Cuts, and the cost of  military operations in Iraq and Afghanistan.

Extra Credit Reading

There are more explanations as to why the Balanced Budget Amendment idea is unbalanced, and the following articles are recommended reading:

Former Reagan Administration Adviser Bruce Bartlett on “The Dopiest Constitutional Amendment of All Time?”  Capital Gains and Games,  March 2011;  Ezra Klein on “The Worst Idea in Washington”  Washington Post, April 1, 2011;  Jonathan Bernstein on “The Explode the Deficit Constitutional Amendment,” Plain Blog, April 1, 2011.

David Leonhardt, “The Trouble With Balanced Budget Amendments,” New York Times, July 7, 2011;  WaPo Editorial Board, “A Balanced Budget Amendment Isn’t The Answer,” Washington Post, July 14, 2011; Bruce Bartlett, “The Phony Balanced Budget Amendment,” Capital Gains and Games, July 15, 2011;  Andrew Leonard, “The Dangerous Silliness of a Balanced Budget Amendment, Salon,  February 1, 2011.

Those wanting more substance should see Bruce Bartlett’s excellent list of academic articles on the fallacies of balanced budget amendment ideas,  published in Bartlett’s Notations, August 2010.  The Economic Policy Institute released its analysis of the “Cut, Cap, and Balance” proposal (pdf) in a briefing paper issued June, 2001.  The Economic Policy Institute also reviews the spending cap proposals in “House 18% cap is as bad and infeasible policy as the Senate’s,” June 3, 2011.

The Center for Budget and Policy Priorities has looked at the current balanced budget amendment proposals and found them wanting.  See – “Statement by Robert Greenstein, March 31, 2011;  Greenstein, Horney, Merrick, “Balanced Budget Amendment would require more extreme cuts than Ryan Plan,” June 6, 2011;  Greenstein and Hogan, “Balanced Budget Amendment Would Threaten Great Economic Damage,”  June 6, 2011.  See also: Norman Orenstein, American Enterprise Institute, “Four Really Dumb Ideas That Should Be Avoided,” January 26, 2011.

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