Balanced Budget Amendment Debate Gets Serious

The debate over a Constitutional balanced-budget amendment has been going on in Washington for quite some time. However, the current fiscal environment and several proposals in both chambers of Congress this early in the new session mean that the idea could garner lots of attention, and votes, this year.

On the House side at least six bills have been introduced. The most prominent is sponsored by Rep. Bob Goodlatte (R-VA); his legislation has 178 co-sponsors. As a member of the majority and a senior member of the House Judiciary Committee, which has jurisdiction over the bill, Rep. Goodlatte will have some control over whether the proposal gets voted on this year.

Action on the other side of Capitol Hill is also possible this year. Senators Orrin Hatch (R-UT) and John Cornyn (R-TX) have proposed a balanced budget amendment of their own with 19 co-sponsors so far and similar legislation was unveiled by Senators Mike Lee (R-UT) and Jon Kyl (R-AZ). And this week the first bipartisan Senate proposal was introduced by Senators Mark Udall (D-CO) and Richard Shelby (R-AL).

Below is a table comparing several different balanced-budget amendment proposals:

 

Bill & Sponsor Basic Provisions

 Raising Debt Limit Requires:

Raising Taxes Requires:

Takes Effect Other

H.J. Res. 2

Rep. Goodlatte (R-VA)

Spending cannot exceed revenue, unless approved by 3/5 majority

President must submit balanced budget to Congress

3/5 majority

Simple majority

2nd FY after ratification, or 1st FY after Dec 2016

Exemption for military conflicts

H.J. Res. 4

Rep. Buchanan (R-FL)

Spending cannot exceed revenue, unless approved by 3/5 majority

President must submit a balanced budget to Congress

3/5 majority

Simple majority

2nd FY after ratification, or 1st FY after Dec 2016

 

Exemption for military conflicts and natural disasters

 

H.J. Res. 10

Rep. Cuellar (D-TX)

Spending cannot exceed revenue, unless approved by 3/5 majority

President must submit a balanced budget to Congress

Not specified

Not specified 

2nd FY after ratification, or 1st FY after Dec 2020  

Balanced budget must be achieved without reducing disbursements from OASI or DI Trust Funds 

Exemption for military conflicts

H.J. Res. 11

Rep. Broun (R-GA)

Spending cannot exceed revenue, unless approved by 2/3 majority

President must submit balanced budget to Congress

2/3 majority

2/3 majority

2nd FY after ratification

 

Total spending cannot exceed previous years' plus population growth and inflation

Any surplus revenue must be returned to taxpayers

Exemption for declarations of war

H.J. Res. 14

Rep. Emerson (R-MO)

Congress and President must agree on an estimate of total revenue through a joint resolution-Congress cannot spend more than this level, unless approved by 3/5 majority

President must submit a balanced budget to Congress

3/5 majority

Simple majority

2nd FY after ratification

Budget deficits must be paid for the following fiscal year

Exemption for declarations of war

H.J. Res. 18

Rep. Terry (R-NE)

Spending cannot exceed revenue, unless approved by 3/5 majority 

President must submit a balanced budget to Congress

3/5 majority

3/5 majority

2nd FY after ratification

Exemption for military conflicts

S.J. Res. 3

Sen. Hatch (R-UT) & Sen. Cornyn (R-TX)

Spending cannot exceed revenue, unless approved by 2/3 majority 

President must submit a balanced budget to Congress

Not specified

2/3 majority

4th FY after ratification

 

Caps federal spending at 20% of GDP, unless approved by 2/3 majority

Exemption for military conflicts or upon 2/3 majority approval

S.J. Res. 5

Sen. Lee (R-UT) & Sen. Kyl (R-AZ)

Spending cannot exceed revenue, unless approved by 2/3 majority

President must submit a balanced budget to Congress

2/3 majority

2/3 majority

2nd FY after ratification

Caps federal spending at 18% of GDP, unless approved by 2/3 majority 

S.J. Res. 4

Sen. Udall (D-CO) & Sen. Shelby (R-AL)

Spending cannot exceed revenue, unless approved by 3/5 majority

 Not specified  Not specified 1st FY after ratification

Caps federal spending at 20% of previous year's GNP, unless approved by 3/5 majority 

Exemption for declarations of war

 

The idea appears to be gaining momentum on both sides of the Capitol. In her response to President Obama's State of the Union address, Rep. Michele Bachmann (R-MN) challenged the President to support an amendment, and Sen. Rand Paul (R-KY) included a balanced-budget amendment in his recently published fiscal plan.

Both Senators Hatch and Lee have committed to tying a balanced-budget amendment to raising the debt ceiling (see also here). Other lawmakers have made it clear that they will not vote to raise the debt ceiling unless it is tied to a serious fiscal plan. 

CRFB agrees that the upcoming debt ceiling vote provides a critical opportunity to make significant progress in improving our fiscal outlook. Though failing to raise the debt ceiling would be quite dangerous, so too would continuing our current fiscal path. Agreeing to a credible fiscal plan can help ease the anxiety of legislators and voters over voting to increase the debt limit, which will be necessary to avoid serious economic consequences (click here to read our debt ceiling primer to learn more).

Though ideally we would get our debt under control simply by enacting a series of tax and spending changes, reforming the budget process could help to push policymakers in the right direction - though it is important to note that those who support such measures must also be willing to identify the specific policies to achieve them. Otherwise, such mechanisms can be used to avoid making the necessary policy choices. The Peterson-Pew Commission on Budget Reform has offered a framework for reforming the budget process that includes annual budget targets and triggers to enforce those targets towards meeting medium- and long-term fiscal goals to reduce the national debt.

Though a balanced-budget amendment has many merits, and shares many features with these targets, it does raise some concerns. Most significantly, it may be unrealistic and therefore unachievable. Current deficits are so large, and fiscal projections so bad, that it may be many years before we are able to balance the budget. Instead, in our view, a fiscal plan (and budget targets) should aim to stabilize and then gradually reduce the debt as a share of GDP. Once our debt has been reduced and is on a manageable path, we may be in a better position to balance the budget and put in place a process (Constitutional or otherwise) to ensure it doesn't fall out of balance.

In addition to this concern, others have pointed out that balanced-budget amendments may prevent the use of countercyclical policies (including automatic stabilizers), and may lead to sub-optimal policy adjustments meant to achieve balance in a given year - rather than over the course of the business cycle.

Nonetheless, calls for a balanced-budget amendment are a welcome sign that Congress is seriously thinking of ways to inject more discipline into the budget process. If we want to get our debt under control, both process and policy will be needed to get us there.

budget proposal

propose legislation to balance the budget by a certain date and that it stay that way forever, much like states already do.  the specifics are to be proposed either by a new commission with congress getting up or down vote but then requiring them to come up with their own plan if they reject. no way out. 

sub-optimal policy adjustments

This was the most important paragraph in that entire blog post: 

"In addition to this concern, others have pointed out that balanced-budget amendments may prevent the use of countercyclical policies (including automatic stabilizers), and may lead to sub-optimal policy adjustments meant to achieve balance in a given year - rather than over the course of the business cycle." Istead of stuck near the end, it should have been the highlight.

 

A balanced budget amendment would be highly destructive, particularly during recessions (which happen on and off, part of the business cycle). A BBA would prohibit the government from being able to take extraordinary actions during extraordinary times. Think about what a disaster it would be if we had to get spending down to 14.8% of GDP, the level of revenue we took in last year. OMB Watch was exactly right in their article when they said a BBA would have made stimulus nearly impossible to pass. ARRA was responsible for saving millions of U.S. jobs, brought down the short-term u nemployment rate, and had significant impact on growth of real GDP (http://www.cbo.gov/ftpdocs/100xx/doc10008/03-02-Macro_Effects_of_ARRA.pdf). Zandi and Blinder say this about the government's overall policy response to the great recession: 

 

"For example, we estimate that, without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation."

How about just spending

How about just spending cannot exceed revenue, PERIOD.  I believe it is rare that we have 3/5 or 2/3 representatives that can be trusted at any time to vote for the people.  Government needs to be held accountable just like the people.  We write a bad check, we go to jail.  If you don't have it, DON'T SPEND IT.  It just seems so simple.  Why does the government have to make everything so complicated?  If they followed the example the LDS church uses, it would never be in debt.  Sure we may WANT a bunch of stuff, but that will never end.  There's way too many special interests out there.  Get rid of the IRS and that will save trillions.  Do a fair tax.  Let education be competitive.  If the private sector schools can do a better job on less, give them the money.  The more entitlements we have, the more fraud and waste there is.  Let families keep more of their money and then along with their churches they can take care of their own "special needs."  SIMPLIFY.  Government needs to get back to bare bones.  There are very few things government should be in charge of, like military, the infrastructure.  Have prisoners work for their food.  Get rid of ACORN and all the ridiculous groups that get federal tax dollars.  We need to repeal the stimulus and everything else that we cannot afford.  I wish the government would shut down at least until Obama is gone.  How has he not been impeached yet?  What more does he have to do before he has entirely ruined the United States of America.  It's obvious his goal is to collapse the system.  There is no doubt in my mind if Obama had his way he would not only be a dictator of this nation but ruler of the entire world.  I want my country back.  

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