Politics & Policy

Deficit Theater

The United States Capitol Dome is seen before dawn. (Gary Cameron/Reuters)
We’re not going to pass a balanced-budget amendment, and Republicans know it.

When Congress comes back from recess, House Republicans will be considering a balanced-budget amendment to the Constitution. This is purely for show.

To amend the Constitution would require a bipartisan two-thirds vote in both houses of Congress, which is not going to happen — and even that would just set up a showdown in the states, three-quarters of which would need to ratify the amendment. And not to put too fine a point on it, but one might reasonably question whether the 2018 Republican party, fresh off of a trillion-dollar deficit-funded tax cut and a $143 billion deficit-funded spending increase, actually wants to eliminate the deficit.

Moreover, despite being a proud deficit hawk, I don’t think a measure this draconian is a practicable solution to our budget woes.

Yes, those woes are severe. We’ve already racked up a debt that’s three-quarters of our GDP — meaning it would take nine months’ worth of our entire economic output to pay it off — and the retirement of the Baby Boomers is going to be very, very expensive for the rest of us. Sooner or later we’re going to be forced into a combination of entitlement cuts and tax hikes, and the longer we wait, the harsher and more immediate the changes will have to be.

But requiring Congress to balance its spending with its tax receipts on a year-by-year basis opens its own can of worms.

For one thing, there are good reasons for the federal government to run a deficit when the economy tanks — tax receipts fall while the need for welfare spending spikes, and states’ own balanced-budget requirements limit their ability to respond to such crises on their own. So either the government will be unable to respond to these disasters, or there will be a loophole in the amendment big enough to allow significant deficits in a down economy, perhaps in the form of allowing Congress to override it at will with a supermajority vote. (I suppose Congress could also run a surplus while the economy is good so it has money to spend during recessions, but . . . hey, stop laughing.)

Also, an annual deficit is not such a bad thing in itself. In fact, we could reduce the debt in percentage-of-GDP terms while running a deficit every single year — for example, if the debt grew 2 percent per year while GDP grew 3 percent. A balanced-budget amendment would close the door on this gentle route to fiscal responsibility.

A balanced-budget amendment further raises the thorny question of enforcement. If Congress passes a budget that violates the amendment, will it fall to some judge to decide what mix of tax hikes and spending cuts must be enacted to get everything in line? Will the amendment give that authority to the president? Will there be an automatic sequestration process?

This problem is not as big as some make it out to be — states have had assorted balanced-budget rules for decades, some lacking explicit enforcement mechanisms and others being rather strict, and the sky has not fallen on them. To the contrary, the requirements have generally just worked, as a report from the National Conference of State Legislatures details (though the pension crisis might prove to be the true test of the system).

But whether the risk of Congress refusing to comply with a balanced-budget amendment is big or small, those pushing such a policy will need to address the concern. On the federal level, this situation will be catastrophic if it’s unclear who has the authority to resolve it.

Pick a fiscal situation we can live with — a sustainable combination of spending, taxes, deficits, and debt — and develop a long-term plan for getting there. We can even try to put it in the Constitution if we really want to.

What should conservatives do instead of engaging in this charade? I say we pick a fiscal situation we can live with — a sustainable combination of spending, taxes, deficits, and debt — and develop a long-term plan for getting there. We can even try to put it in the Constitution if we really want to.

Professional opinion varies when it comes to what this should look like, all the way up to a belief that a bigger deficit might be “exactly what we need” if it helps keep taxes down, as the Niskanen Center’s Karl Smith wrote on these pages during the tax debate last year. Others of us are nowhere near that optimistic — for one thing, we worry that government borrowing “crowds out” private investment, harming the economy; for another, we’re concerned about what will happen if interest rates rise. The folks at the Committee for a Responsible Federal Budget tend to represent this view well: We could, say, stabilize taxes and spending at around a fifth of GDP each year and aim to bring debt down to 60 percent of GDP over the next few decades.

But sorting this out would be a serious conversation about difficult decisions — a conversation Congress doesn’t want to have right now.

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