Political Correction

Despite Criticism From Both Sides Of The Aisle, Republicans Propose Balanced Budget Amendment Again

February 03, 2011 2:44 pm ET

Senator Orrin Hatch (R-UT) recently announced that he is re-proposing a Balanced Budget Amendment to the Constitution. Hatch has previously tried unsuccessfully to enact this amendment, with his most successful attempt gaining 66 of the 67 necessary votes for the act to become law. However, despite its popularity with Republicans and some Democrats in Congress, a Balanced Budget Amendment has also been criticized by Democrats and Republicans alike. A Balanced Budget Amendment would require a two-thirds majority to enact any new tax increases or raise the debt limit, transfer budgetary power from Congress to the judiciary, and be almost unenforceable, creating an unnecessary burden at its best and a potentially devastating hurdle to necessary spending at its worst.

Draconian Tax Provision Would Make It Harder To Balance Budget

House Version Of Balanced Budget Amendment Requires 2/3 Majorities In House And Senate To Raise Taxes. Section 4 of H.J.Res. 2 reads:

Section 4. No bill to increase Federal taxes shall become law unless approved by two-thirds of the duly chosen and sworn Members of each House of Congress by a rollcall vote. [H.J. Res. 2, 1/5/11]

In 1995, A Balanced Budget Proposal Was Introduced With A Similar Requirement. Section 2 of H.J. Res. 1 reads:

SECTION 2. No bill to increase tax revenue shall become law unless approved by a three-fifths majority of the whole number of each House of Congress. [H.J.Res. 1, 1/18/95]

Several States Have Enacted Supermajority Requirements For Tax Increases.  As the Cato Institute explained in a 1996 report: "Requiring a three-fifths or two-thirds majority in both the House and the Senate to pass a tax increase would allow Congress to pass tax hikes in cases of national emergency but would make it very difficult for Uncle Sam to continue the annual ritual of peacetime tax hikes. Several states, including Arizona, California, and Oklahoma, have enacted such measures; they have stopped tax increases dead in their tracks. As one Arizona taxpayer advocate of the supermajority requirement recently told me, 'Now the legislature doesn't even bother to propose new taxes.'" [Cato Institute, July-August 1996]

Arizona, California, and Oklahoma Are Facing Huge Budget Crises

Arizona: "At the start of this fiscal year, on July 1, 2010, Arizona was looking at a deficit of about $3.4 billion. The cyclical deficit was around $1.2 billion and the structural deficit was $2.1 billion. As a percentage of the budget, Arizona has a 33 percent deficit with 12 percent of that cyclical and 21 percent of it structural." [Inside Tuscon Business, 1/21/11, emphasis added]

California: "California's nonpartisan legislative analyst says the state's budget deficit has grown to $25.4 billion and is now more than a fifth of the general fund." [Huffington Post, 11/10/10, emphasis added]

Oklahoma: "Only a few months removed from being declared 'recession-proof' by the national press, Oklahoma faces the largest state budget deficit in the nation, according to a report by the National Conference of State Legislatures....Through the first five months of the current fiscal year, Oklahoma's general revenue fund receipts are 28.5 percent below the same period a year ago and 24.3 percent below projections - a shortfall of $577.5 million." [Tulsa World, 12/20/09, emphasis added]

Supermajority Vote To Increase Taxes Makes It Harder To Balance Budget. In an op-ed in US News and World Report, former Rep. Boehner staffer Scott Galupo wrote: "The amendment's additional requirement of a supermajority vote - two-thirds of both the House and Senate - to increase taxes gives the game away: If you're serious about balancing the budget, why would you make it much harder for Congress to balance the budget?" [US News and World Report, 8/10/10, emphasis added]

Balanced Budget Amendment Could Worsen Recession And Still Not Solve Budgetary Problems

A Balanced Budget Amendment Would "Make Economic Recessions Worse" By Forcing Spending Cuts During Downturns. According to former Reagan domestic policy advisor Bruce Bartlett: "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." [Fiscal Times, 8/27/10]

A Balanced Budget Amendment Would Not Allow The United States To Respond To "Shocks." According to Economist Charles L. Schultze:

The combination of market adjustments and appropriate Federal Reserve policy can ensure that the absence of budget deficits, and indeed running a budget surplus of moderate size, will be consistent in the long run with the maintenance of high employment. In the short run, however, even the best run monetary policy cannot be expected to offset perfectly the aggregate demand consequences of substantial demand shocks. In particular, the mean lags of the effects of monetary policy changes on aggregate demand are long, and both the lag profile and the magnitude of those effects are variable and uncertain. Given the inherent difficulties in forecasting the appearance of shocks and in pinning down the time profile and magnitude of responses to monetary policy, the monetary authorities will be neither willing nor able to provide full offsets.

By prohibiting even temporary budget deficits, the constitutional amendment, if enforced, would lead to a situation in which the automatic stabilizing features of the federal budget would be replaced by a procyclical pattern in which any initial falloff in aggregate demand would be reinforced by immediate federal spending cuts (or, less likely, given the structure of the amendment, tax increases).  [National Tax Journal, "The Balanced Budget Amendment: Needed? Effective? Efficient?", September 1995]

Balanced Budget Amendment Would Make Any Borrowing Unconstitutional. Section 3 of H.J.Res. 1 reads:

Section 3. 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 rollcall vote. [H.J. Res. 1, 1/5/11]

In 1995, A Balanced Budget Proposal Was Introduced Into The Senate With The Same Language. Section 2 of H.J. Res. 1 reads:

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 rollcall vote. [H.J. Res. 1, 1/27/95]

The U.S. Borrows For More For "Items Other Than Deficit Spending." In a Los Angeles Times op-ed, Northwestern University Professor Robert Eisner wote: "But in practice, some items other than deficit spending contribute to the debt. For example, the Treasury borrows to finance student loans--borrowing that the amendment would make unconstitutional even if the budget were balanced!" [Los Angeles Times, 2/5/95]

Balanced Budget Amendment Would Not Allow Government To Respond To Faltering Economy. According to OMB Watch:

However, this spending, which Congress does not specifically offset, automatically increases the deficit. While automatic stabilizers adjust as the economy starts faltering, it would be difficult for legislators to act as fast if a balanced budget amendment required lower spending or higher taxes to offset the stabilizers. More importantly, though, offsetting the cost of the automatic stabilizers defeats their whole purpose: they pump money into the economy just when it needs it. By raising taxes or cutting spending, the government would be giving out money with one hand while taking it back with the other, reducing the stabilizers' effectiveness.

A balanced budget amendment would create a constitutional mandate for such offsets, effectively preventing the government from acting quickly to help modulate GDP fluctuations. Indeed, the practical requirements of a balanced budget amendment might have a wide-ranging effect on the federal budget and could require spending caps or enrollment maximums on mandatory spending programs and tax provisions. Of course, a balanced budget amendment would make actual stimulus bills such as the American Recovery and Reinvestment Act (Recovery Act), which are often deficit-financed, all but impossible to pass. [OMB Watch, 1/25/11]

Balanced Budget Amendment Could Send Budget Into Legal Quagmire

Ambiguity Of Balanced Budget Amendment Proposals Would Force Judicial Intervention. During a previous attempt in 1995 at a balanced budget amendment, Walter Dellinger, the former Assistant Attorney General at the Office of Legal Counsel, testified before the Joint Economic committee:

As I indicated in my earlier testimony and statements, the primary concern of the Department of Justice is that the proposed amendments fail to address the critical question of how they will be enforced. Were a balanced budget amendment to be enforced by the courts, it would restructure the balance of power among the branches of government and could empower unelected judges to raise taxes or cut spending -- fundamental policy decisions that judges are ill-equipped to make. If the amendment proves unenforceable, it would diminish respect for the Constitution and for the rule of law." [Justice.gov, 1/23/95, emphasis added]

Law Could Put Congressional Budgetary Power In Hands Of Court. According to a CBO report on a Balanced Budget Amendment from 1982: "The courts would gain budgetary power because they might be asked eventually to enforce the prohibition against a possibly reluctant Congress. Several proposals, for example, include provisions stating who can sue whom in what court to enforce the proposed act." [Congressional Budget Office, September 1982]

Rules On Raising The Debt Ceiling Could Force "Calamity Throughout The World"

House Version Of Balanced Budget Amendment Will Require 3/5 of House To Raise Debt Limit. Section 3 of H.J.Res. 1 reads:

Section 3. 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 rollcall vote. [H.J.Res. 1, 1/5/11]

Sen. Lindsey Graham (R-SC): Failure To Lift Debt Ceiling Could Cause "Calamity Throughout The World." During an interview on CNN, Sen. Lindsey Graham explained that our financial system would be in jeopardy if the debt ceiling were not raised:

Let me tell you what's involved if we don't lift the debt ceiling: financial collapse and calamity throughout the world. That's not lost upon me. But we've done this 93 times. And if we keep doing the same old thing, then that is insanity to the nth degree. We're going to have calamity of a different fashion if we don't get our spending under control. So what I said is the House is going to go back to 2008 spending levels. I would like to see the Senate mirror what the House does. Now that means tightening our belt, but name somebody in America who hasn't had to tighten their belt. [1/6/11, emphasis added]

Treasury Secretary Timothy Geithner: Failure To Raise Debt Ceiling Would Cause, "Catastrophic Economic Consequences That Would Last For Decades." According to the Washington Post:  "Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark 'catastrophic economic consequences that would last for decades.'" [Washington Post, 1/6/11]

Balanced Budget Amendment Could Prove To Be "Effectively Unenforceable" And Cause A Loss Of Congressional Power

Former Reagan Adviser: The Balanced Budget Amendment Is "Effectively Unenforceable." According to Bruce Bartlett, a former domestic policy adviser to President Reagan:

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. [Fiscal Times, 8/27/10, emphasis added]

Former Reagan Adviser: Amendment Could Keep United States In "Perpetual State of War": According to Bruce Bartlett, a former domestic policy adviser to President Reagan: "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?" [Fiscal Times, 8/27/10]

There Are Numerous Ways To Circumvent A Balanced Budget Amendment. According to a CBO report on a Balanced Budget Amendment from 1982: "Assuming that the prohibitions were effective in preventing deficits and checking expenditure growth, those desiring new or enlarged programs could resort to mechanisms outside the unified budget. Four such routes are regulation, government-sponsored corporations, off-budget agencies, and guaranteed loans." [CBO, September 1982]

A Balanced Budget Amendment Would Be Self-Defeating, Causing A Loss Of "Congressional Authority." According to the CBO:

The adoption and implementation of a balanced budget rule or an expenditure limitation would result in loss of Congressional authority in two ways. First, these proposals, by their very nature, seek to reduce Congressional flexibility in budget-making. As previously stated, many critics of the present budget process see flexibility, particularly in determining fiscal policy, as the cause of many of America's economic problems. Others see fiscal policy as a central function of government, whatever are the imperfections in implementing it.

Second, a stringent budget rule would, in all probability, shift the responsibility for economic policy from the Congress to the Federal Reserve, the courts, and/or the President, or all three. As discussed in Chapter V, under a balanced budget rule, fiscal policy would largely be removed as a tool of discretionary economic policy, with increasing reliance placed on monetary policy. As such, Congressional authority over economic policy would decline while that of the Federal Reserve would increase. Under these circumstances, the Congress might choose to exert greater control over the Federal Reserve." [CBO, September 1982]

Congress Could "Fudge" The Numbers In Order To Have A Higher Budget. According to economist Charles L. Schultze: "To the objection that Congress could fudge the 'high employment' budget estimates, I ask: Why swallow a camel and strain at a gnat? To operate under this amendment, Congress must make many estimates and provide a myriad of interpretations--all of which could be fudged." [National Tax Journal, "The Balanced Budget Amendment: Needed? Effective? Efficient?", September 1995]

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