The Broader Market

by Jordan Eizenga

In March, all 47 of the Republican Senators joined in introducing legislation that would constitutionally bind the federal government to balancing its budget annually.  And this week, Republican Senate Majority leader Mitch McConnell called once again for a balanced budget amendment, a constitutional rule requiring the federal government to spend no more than it takes in as revenue each year.

A balanced budget amendment is not a new idea. Over the years there have been various proposals to amend the U.S. Constitution to impose a balanced budget requirement, but none have garnered enough votes in Congress to take the next step toward enactment: ratification by the states.  The farthest a balanced budget amendment has reached in the process was in 1995, when a proposed amendment passed the House, but failed to achieve the required two-thirds majority in the Senate.

Yet, new or old, the Republican balanced budget amendment is a terribly bad idea. Here is why:

First, and foremost, it would hurt the economy and constrain the ability of our policymakers to respond to unpredictable economic conditions.                                                                 

A balanced budget amendment without cyclical adjustments, as the Republican proposal calls for, would force spending to be cut during recessions simply to avoid “unconstitutional” deficit spending. Doing so would run contrary to basic economic wisdom and would have a very negative impact on the economy. During economic downturns, GDP and tax revenue drops and government must increase spending in order to stabilize the economy. Yet, with a balanced budget amendment as envisioned by the Republican senators, “when the economy contract[s], the government would have to contract as well.”  This would only worsen the downturn and could demand cuts to programs that are very effective in fighting recessions and keeping people out of poverty, such as unemployment insurance and the food stamps program.

Second, enforcement of a constitutional balanced budget rule would be burdensome in a presidential system and would delegate final say over budgetary policy to unelected judges.

Our presidential system makes enforcement of a balanced budget amendment difficult. The President, unlike governors, does not have the unilateral power to cut spending during the budget process in order to avoid end of year deficits. Similarly, in contrast to parliamentary systems in which the interests of the government and the parliament are already aligned, the President is often constrained by a Congress that offers no guarantee of political support. In this unique American political system, passing tax and budget legislation to be in compliance with constitutional law could be very difficult to accomplish.

It would also alter the balance of powers in the federal government by delegating tax and budgetary powers to the unelected judiciary. As Walter Dellinger, former Assistant Attorney General, said before the Joint Economic Committee during the previous balanced budget amendment debate in 1995:

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.”

In our political system, courts settle disputes and pass on matters of constitutional law, but they are not given a voice in shaping economic and fiscal policies.  The U.S. Constitution envisions that key questions of national priorities (“common defense,” “general welfare”) are fundamentally questions for the elected branches of government, and principally the legislature. If we amend the Constitution to include a balanced budget requirement, we are effectively giving the judiciary the power to make final decisions on budget matters. As Charles Schultz, a former chairman of the Council of Economic Advisors, has argued, the Founding Fathers specifically refrained from including fiscal policy in the Constitution.   Enacting a balanced budget amendment would fly in the face of this principle that has generally served the U.S. well for more than two centuries.

Third, it is completely unnecessary.

The United States has balanced its books before at times when policymakers in both parties reached agreement on the need to trim spending and raise additional revenue. History shows that the budget can be balanced without the need for a constitutional budget amendment. For its first 200 years, except during economic downturns or wartime, the federal government ran either no deficits or very modest deficits. This didn’t change until the 1980s, when large tax cuts and defense increases grew deficits dramatically. 

Even in the absence of a constitutional rule, the U.S. has been successful in reversing large deficits.  The key was a bipartisan agreement to strategically reduce long-term spending and to increase revenue. Consider that, between 1986 and 1996, Congress, two Republican administrations, and a Democratic administration passed legislation that reduced the deficit from 5.1 percent of GDP in 1986 to 1.4 percent in 1996, a 70 percent drop.  During the final three years of the Clinton administration, the federal government ran a budget surplus and the publicly held debt actually began to decline.

UPSHOT: A balanced budget amendment does not help balance the budget at all.  What Mitch McConnell and other Republican legislators are trying to do is to enforce rules that allow legislators to avoid making the hard (and often unpopular) choices of what to cut and how much to tax. And no rule will get you to a balanced budget, particularly a rule that lacks a workable enforcement mechanism for our political system. The clear and simple truth is that a balanced budget will only be achieved by cutting spending and raising tax revenue. This is not rocket science.