The House is voting tomorrow on a balanced budget amendment (BBA) to the U.S. constitution. The conventional wisdom — espoused in graduate programs in economics across the nation — is that a BBA is the budgetary policy equivalent of returning modern medicine to the practice of bloodletting. This is badly mistaken. It is time for the U.S. to adopt a BBA.
Why? At present, the federal government does not have a fiscal policy. Instead, it has fiscal “outcomes.” The House and Senate do not reliably agree on a budget resolution. Annual appropriations reflect the contemporaneous politics of conference-committee compromise, and White House negotiation. Often, the annual appropriations process is in whole or part replaced with a continuing resolution. Annual discretionary spending is not coordinated in any way with the outlays from mandatory spending programs operating on autopilot. And nothing annually constrains overall spending to have any relationship to the fees and tax receipts flowing into the U.S. Treasury. The fiscal outcome is whatever it turns out to be (usually bad), and certainly not a policy choice.
I believe that it would be tremendously valuable for the federal government to adopt a fiscal rule. Such a rule could take the form of an overall cap on federal spending (perhaps as a share of GDP, a limit on the ratio of federal debt in the hands of the public relative to GDP, a balanced-budget requirement, or something else. Committing to a fiscal rule would force the current disjointed appropriations, mandatory-spending, and tax decisions to fit coherently within the adopted fiscal rule. Accordingly, it would force lawmakers to make tough tradeoffs, especially across categories of spending.
Most importantly, it would give Congress a way to say no. Sending proposals would not simply have to be good ideas. They would have to be good enough to merit cutting other spending programs or using taxes to dragoon resources from the private sector. Congress would more easily be able to say, “Not good enough, sorry.”
What should one look for in picking a fiscal rule? First, it should work; that is, it should help solve the problem of a threatening debt. A fiscal rule like PAYGO at best stops further deterioration of the fiscal outlook and does not help to solve the problem. Second, it is important that there be a direct link between policymaker actions and the fiscal-rule outcome.
Finally, the fiscal rule should be transparent so that the public and policymakers alike have a clear understanding of how it works. This is a strike against a rule like the ratio of debt-to-GDP. The public has only the weakest grip on the concept of federal debt in the hands of the public, certainly does not understand how GDP is produced and measured, and (God help us) may not be able to divide. Without transparency and understanding, public support for the fiscal rule will be too weak for it to survive. No matter which rule is adopted, it will rise or fall based on political will to use it and the public’s support for its consequences.
In this setting, what should one think of a BBA? First, fiscal constraints in the form of spending caps, triggers, and other like devices are laudable, but fall short of constitutional amendment in their efficacy. A constitutional amendment, by design, is (effectively) permanent and therefore persistent, even if bypassed in certain exigent circumstances, in its effect on U.S. fiscal policy. Fiscal rules should allow policy figures to say no. A constitutional amendment will not only allow that, but given the gravity inherent in a constitutional amendment, hopefully dissuade contemplation of legislative end-arounds that other rules might invite.
Second, there is a clear link between congressional actions — cutting spending, raising taxes — and adherence to a balanced-budget amendment. Of course, congressional action is not all that determines annual expenditures and receipts. Military conflicts and other such contingencies can incur costs without advance congressional action, while economic conditions can affect tax revenues and some kinds of spending, such as unemployment insurance and other assistance programs.
However, these fluctuations are ultimately not the driving force between the U.S. fiscal imbalance. Indeed, in a world with stable tax revenue and without frequent military contingencies, the U.S. would still be headed towards fiscal crisis. Rather, enacted spending and tax policy largely determine the U.S. fiscal path that must be altered to avert a fiscal crisis. A meaningful constraint on these factors would confront policymakers with the necessity to alter those polices, and as discussed above, to make the choices and tradeoffs needed to shore up the nation’s finances. Tying those choices to an immutable standard, in the form of a constitutional amendment would facilitate that process.
The ability to conduct counter-cyclical fiscal policy is the strongest objection by most who oppose a BBA. But notice a couple of things. First, repeated discretionary fiscal policy has been unsuccessful in the 1960s and 1970s in the U.S. (when it was the policy norm) and again in the 2000–2011 era. Indeed, the only place these policies are successful are on the blackboards of America’s classrooms and in the macroeconomic models based on Keynesian principles (where they literally cannot fail). So the constraint is not a policy cost; it is a policy benefit.
A third facet of a constitutional amendment that augurs well for its efficacy is the ratification process itself. This is a process that takes years. While the two-century long ratification of the 27th Amendment may be an extreme example, suffice it to say successful ratification of a constitutional amendment requires acceptance at many levels of public engagement. For the purpose of constraining federal finances, this is beneficial, as it necessarily requires public “buy-in.” Without question, the changes needed to address federal spending policy will be difficult. Any process that engages the public, and by necessity, requires public complicity to be successful will ease the process of enacting otherwise difficult fiscal changes.
Lastly, the very nature of a constitutional amendment shields it from the annual vicissitudes of federal policymaking. It cannot be revised, modified, or otherwise ignored in the fashion of the many checks on fiscal policy enacted or attributable to the Congressional Budget Act of 1974 or its successors. Congress cannot renege on its obligations with such an amendment in place.
But not all balanced-budget amendments are created equal. Balanced-budget amendments can differ significantly, with considerable variation in the consequences of their design.
While largely the result of choices by policymakers, the U.S. fiscal situation is shaped in some way by forces outside of the legislative process, such as war, calamity, or economic distress. Critical to an effective balanced-budget amendment is the acknowledgment of this reality with a mechanism for adjusting to these forces without undermining the goal of the amendment to constrain fiscal policy. The abuse of emergency designations in legislation to get around budget enforcement is an example of what can happen when the goal of constraining fiscal policy is subordinated to flexibility in the face of some crisis, real or otherwise. Stringent accountability, such as requirement of a supermajority, can mitigate this problem.
Past iterations of balanced-budget amendments have faced legitimate questions as to their capacity to limit the scale of the federal government. A balanced-budget amendment assumes that at some point, the tax burden necessary to balance the expenditure of a large federal government reaches an intolerable level. But there is nothing about a balanced-budget amendment alone that precludes reaching tax and spending levels just approaching that tipping point, which is far from desirable policy.
Accordingly, recent examples of balanced-budget amendments have sought to stanch the accumulation of debt (which is ensured by balance) while also limiting spending to the historical norm. Likewise, recent examples of balanced-budget amendments — including the one just passed out of the House committee — limit Congress’s ability to raise taxes. In each case, these limitations can be waived by supermajority votes. These are sound approaches that address concerns that a requirement to be in balance will add tax policy to the share of fiscal policy already on autopilot.
The Founders did a great job, but the governmental structure they created just doesn't work well anymore. So we need to amend the Constitution to conform it to modern realities.
That's conservatism, huh?
Reply to this commentLinkReport AbuseNot that I necessarily support this, but there is nothing un-conservative about amending the Constitution using the process put in place by the Founders -- as opposed to appointing judges who make up the law as they go.
Reply to this commentLinkReport AbuseHow about Congress passing law after law after law after law, all in accordance with the structures and processes established by the Constitution?
I.e., standing athwart history yelling, "Go! Go! Go!"
Reply to this commentLinkReport AbuseIt was assumed that the Supreme Court would strike down any unconstitutional spending.
That was, until the Commerce Clause suddenly came to mean that Congress could do pretty much anything it felt like.
Reply to this commentLinkReport AbuseYes, it was the decision in "Wickard v. Filburn" (see External Link
) that was the tipping point. One of the most flawed decisions ever to be rendered.
If Congress were to have placed limits upon the amounts of wheat that could be transferred interstate, by sale or other means, that would have been an obviously constitutional but politically unpalatable law. (The concept of bootleggers dealing in farm produce is amusingly horrifying.) Instead the Supreme Court expanded the understanding of the "Interstate Commerce Clause" to include any action that "exerts a substantial economic effect on interstate commerce." This changed the understanding from Congress being able to only regulate a positive action, the sale of a product, to being able to also regulate a negative action, the ability to "not" purchase a product.
Since any action or inaction can have an effect on interstate commerce and the definitition of the lower limits of "substantial economic effect" is nebulous at best (think of the application of chaos theory to economics; where the expenditure of a penny at the right time and place could radically change the GDP of the nation), this meant that the right of Congress to regulate became universal and therefore the ability of Congress to spend in regards to those regulations became infinite. (While there have been subsequent decisions that have limited the scope of the initial decision, the general understanding is of infinite power.)
Interestingly this fatal decision was based upon an assumption that should have been considered for and rejected upon its unconstitutionality; that Congress had the right "to stimulate trade therein at increased prices." Referring to the "Federalist Papers" (especially External Link
External Link 
External Link 
), it is obvious that the original intent of the "Interstate Commerce Clause" was to insure equitable and free trade between the states and to enable the collection of taxes thereupon, not to increase the price of a given product. (Yes, prohibitions on dumping are a viable exercise of law, but that is a specific and limited case that has a direct effect on interstate commerce.)
As an aside, if one assumes that Congress has the power to increase prices in order to increase revenue then the decision can be seen as the progenitor of "Kelo v. City of New London." ( External Link
)
Reply to this commentLinkReport AbuseAnyone with a modicum of intelligence is aware that the founders established a federal government of limited powers, and never imagined the present leviathan or the assumption of unlimited powers that has occurred.
Reply to this commentLinkReport AbuseEach House of Congress shall pass a balanced budget every calendar year or all members of the house failing to pass a budget are inelligible for any federal office at the end of their current term for a period of 10 years.
Reply to this commentLinkReport AbuseIt's been made clear to us over the past few years that when candidate Obama delcared the families of politicians to be off-limits applies, he was referring only to the families of Democratic politicians, not the families of Republican politicians. And we know exactly how the liberal media would react if 1,000 Tea Partiers showed up at the private home of a Democratic politician whose spouse and children were in residence. This is the same sleezy intimidation tactic liberals used on bankers and Wall Street executives, terrifying one man's young son who was at home alone when the unruly protesters showed up.
It's difficult to believe that liberals care for their fellow citizens the way they claim they do when they behave in a manner that suggests they care only for themselves and those who agree with their point of view. And they certainly have no respect for the election process, forcing state and local taxpayers to fund their efforts to overturn election results they don't like. I recall Richard Trumka claiming the union is fighting for all American workers, but seems not to consider that not all American workers are liberal union members who support the in-your-face tactics he encourages and not all American workers vote for the same candidates he votes for.
Reply to this commentLinkReport AbuseI don't believe that a BBA has any chance of working. Any loophole will be exploited. If you put in a clause for 'emergency spending' then every day will be an emergency. What we need to do is attack the problem of spending - Simply state that no budget can spend more than the previous year's revenues. If they want to increase spending someplace, they'll need to decrease it elsewhere. If they increase taxes, the revenue won't show up until next year, which would encourage them to deal with realities when it comes to the tax code.
Reply to this commentLinkReport AbuseMy analysis of the current BBA.
Proposing a balanced budget amendment to the Constitution of the United States.
Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each House concurring therein), That the following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States within seven years after the date of its submission for ratification:
This will take the balance of this year and likely next year to pass the house and senate. Then after this it will take 7 years to pass through 3/4ths of the states before it is ratified.
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 rollcall vote.
This section does keep spending to revenue, however 60% (NOT A SUPER MAJORITY) can over ride this with a simple vote. Every year this amendment is in place all congress has to do is to have 60% vote to override this amendment and deficit spending continues unchecked. Just look at the discipline the congress has in keeping spending down as it is. These CR’s keep on getting passed with far larger majorities than 60%. Can we really trust the congress to keep this cap in effect?
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.
More than 60% of congress passed the last debt ceiling increase. This is merely codifying business as usual!
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.
When does the President make budgets? Is this giving the White House added constitutional power? How long will it take for a Proposal as suggested, becomes the single budget to pass. Is congress abdicating it’s constitutional duty to make and pass budgets? They have failed to produce on for over 1,000 days now. Is congress now admitting it is a failure by constitutional amendment?
SECTION 4. No bill to increase revenue shall become law unless approved by a majority of the whole number of each House by a rollcall vote.
So 50.01% of congress now has the power it had before this amendment – to increase taxes. No change here – just codifying business as usual. Now it is constitutional to raise taxes. Prior to this amendment, there is a question if raising taxes is constitutional. This is the Trojan Horse of this BBA.
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. Any such waiver must identify and be limited to the specific excess or increase for that fiscal year made necessary by the identified military conflict.
We are in near constant war – so this section makes the entire BBA void.
SECTION 6. The Congress shall enforce and implement this article by appropriate legislation, which may rely on estimates of outlays and receipts.
More federal agencies – more incompetent and overpaid federal workers
SECTION 7. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except for those for repayment of debt principal.
This is the only good part of this amendment. Most in the federal government sees debt as cash. Nice to see these codified. However, anyone who took a BASIC HIGH SCHOOL ECONOMICS CLASS should know this anyway. Kinda shows how much the federal workforce and congress lacks basic common knowledge on how cash flow works – they need something as high level as a constitution to make such very basic definitions made. Like I said, these definitions should be left to rudimentary high school text books.
SECTION 8. This article shall take effect beginning with the fifth fiscal year beginning after its ratification.’’
So we have 7 years to ratify the BBA by getting 3/4ths of the states to pass this, then it takes effect 5 years after that. So in the next 12 years the RINO’s have provided themselves free reign on our national debt.
This BBA is not a good deal for America. All it does is make current business as usual - constitutional. Lets wake up people, we want a balanced budget in 2012. This BBA just allows the most corrupt and incompetent alumni of federal workers and congress member to continue to steal from our children’s; our grand children’s and our great grand children’s future. There is absolutely no teeth in this BBA.
Please work to block this and force congress to do the work we sent them there to do in 2006, in 2008 and last November. That job is to cut the size and scope of the federal government. We need a balanced budget today not 12 years from now!! This BBA side show is over. I honestly do not believe this is intended to pass anyways – but rather be a distraction. As usual the RINO’s have failed. Now get to serious work!
Reply to this commentLinkReport AbuseG Colgrove:
HOW DARE YOU bother us with actual "analysis" of the "language" of the proposed balanced-budget amendment.
We want to discuss just the "idea" of the amendment - out there in the air, like a pretty cloud.
Enact the BBA! So that we can have a constitution just like the one the Soviet Union had - full of great "ideas" to which no one had an obligation to pay the slightest attention.
And, as a result, we'll feel all good about ourselves.
Because, after all, self-esteem is important!
Reply to this commentLinkReport AbuseAs far as war and natural disasters, these are extra-budget. If congress declares war here are codified powers of congress to provide funding for war or natural disasters.
Section 8 - Powers of Congress – an abridged list
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
Taxes can be raised for paying for war. This will allow all citizens to be involved in the decision to go to war.
To borrow money on the credit of the United States;
Debt can be raised for paying for war.
To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;
To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;
If there is a declared war – this is not a budget item! An Army has to be raised and funded for no more than two years. After the war is over the Army is let go and the TEMPERARY appropriation is deallocated. If the war is to continue, congress is to vote for another two year appropriation. Since WWII, the federal government has been in a constant war. Like Jimmy Buffet says – it is 5:oo somewhere, the DoD says it is war somewhere. We do not need a amendment to deal with war funding – as they say – its already in there!
The economic mess we are in is not due to the lack of constitutional declarations. It is because we have a federal class of federal workers and congressional members who fail to do their work. The current BBA essentially throws the baby out with the bath water. If war is declared, then the entire drive for a balanced budget is tossed out – meaning it is an advantage to raise a war to increase any federal department spending (like for the department of education) – just like what happened after 9/11 to historic egregious levels.
If we see war and natural disaster spending as EXTRA-BUDGET, then apply existing constitutional dictates, war can be funded by debt or by raised taxes, but the BUDGET is still required to be balanced. This separated war spending from “core” defense spending. Once the war is over the “core” spending stays as is, but the added war spending goes into the ether.
The liberal neocon RINO’s are pulling the wool over our eyes. This BBA is actually Orwellian in a since. What the BBA actually is – “capping by spending”; “limiting by allowing”; “decreasing by increasing”; etc.
Reply to this commentLinkReport AbuseI'm against the BBA for the simple reason that it will be used as an excuse to raise taxes.
Imagine this; Democrats control the House and Senate, and have passed multiple spending bills that exceed revenue. What's their solution? Cut spending? Heavens, no! They will simple raise taxes under the illusion that revenue will increase long term to pay for their pet spending projects.
Okay, I know. Replace "Democrats" with "Republicans" and the same thing will happen.
Reply to this commentLinkReport AbuseYour objection doesn't make much sense to me.
Assume you're right for the moment (and there's every chance that you are); it's a pretty sure bet that the political class, of either party, would prefer to raise taxes than to cut spending in order to comply with their legal obligations.
With a BBA in place, the debate over whose taxes should be raised and by how much will be contemporaneous, and the people directly affected have an opportunity to be represented in that debate. Without a BBA, that debate doesn't really happen (because there's no legal obligation, firstly), and even the vestiges of such a debate would lack proper representation because the people directly affected by tax increases aren't contemporary to it (in other words, "taxation without representation" due to temporal offsets).
Secondly, we currently have no BBA and somehow tax rates haven't simply been raised to pay for spending. What's stopping them from doing it now, and how would a BBA make that more likely? Answer: it wouldn't. The same political forces that now prevent taxes from being raised directly would accomplish the same thing under a BBA.
Reply to this commentLinkReport Abuse"With a BBA in place, the debate over whose taxes should be raised and by how much will be contemporaneous, and the people directly affected have an opportunity to be represented in that debate."
Have you somehow missed the debates about tax cuts or tax increases for the rich? These debates are contemporaneous today, nothing about the BBA would change that.
A BBA would cause tax rates to increase because politicians, for the first time in their political lives, will use the authority of a constitutional amendment to balance the budget.
Of course there's no tax increases today. It's hard to raise taxes (without some constitutional excuse) and it's easy to keep spending. So Washington does the latter and pushes the former down the road.
Reply to this commentLinkReport AbuseSo?
They raise taxes and sooner than later had better begin looking for other employment because theirs will be truncated -- by irate voters.
Reply to this commentLinkReport AbuseYou need to read THIS BBA. It both sets a cap on total spending permitted and it requires a 2/3rds vote to raise taxes.
Reply to this commentLinkReport AbuseA Balanced Budget Amendment with the government functioning the way it does now means the Supreme Court sets the budget.
Reply to this commentLinkReport Abuse"Such a rule could take the form of an overall cap on federal spending"
I am for smaller government as anybody here but if the voters want a Welfare State then so be it. The most fundamental right a legislative body has in a democratic gov't is its power over taxing and spending. I think a Constitutional amendment limiting that power goes against that concept. What would would be the difference between this and Leftist wanting a Constitutional right to a welfare state?
Reply to this commentLinkReport AbuseA BBA does not prevent a welfare state. It does however mean that those wanting a welfare state have to deal honestly with the costs involved and raising taxes to pay for them.
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