A Different Approach to the Balanced Budget Amendment

The focus in Washington on deficit reduction has produced a slew of balanced budget amendment proposals this year. Many lawmakers see a balanced budget amendment (BBA) to the U.S. Constitution as critical to reducing the national debt and have pushed to pair it with a debt ceiling increase. For instance, the “Cut, Cap and Balance” bill that passed the House earlier this week but was defeated in the Senate Friday morning included a provision that Congress approve of a BBA before a debt limit increase would go through.

Generally there’s no magic to what a BBA seeks to accomplish, and most of the proposals are roughly similar. Above all, the aim is to bring spending and revenues in line with each other. Some also seek to constrain Congress’s ability to raise taxes, while others seek to attach similar conditions to raising the debt limit. But all in all the basics of a BBA are the same.

But a recent addition to the pool of amendments, introduced by Rep. Justin Amash (R-MI), includes a unique twist. On Thursday, Rep. Amash, along with 20 co-sponsors (one of which is a Democrat), introduced H.J. Res. 73. This BBA has the same goal of the others – to require a balanced budget in the Constitution, but what sets this apart from the others is Section 1, which reads:

Total outlays for a year shall not exceed the average annual revenue collected in the three prior years, adjusted in proportion to changes in population and inflation. Total outlays shall include all outlays of the United States except those for payment of debt, and revenue shall include all revenue of the United States except that derived from borrowing.

Rep. Amash refers to his amendment as the Business Cycle Balanced Budget Amendment (BCBBA). A frequent criticism of BBAs is that they prevent counter-cyclical policies from kicking in. BCBBA attempts to resolve this issue by using a three-year average. This component is designed to better account for the business cycle by allowing deficits during recessions and savings during growth, as opposed to being a rigid, inflexible constraint in any one year.

The concept is a little complicated to explain (26 page presentation), but basically spending would be gradually reduced over 10 years (Section 5 of Rep. Amash’s BBA) to come in line with the average revenue calculation mechanism. The spending limit calculation would also factor in inflation and population growth. The measure also includes an emergency exemption if agreed to by a ¾ majority in Congress.

While reforming the budget process can help to push policymakers in the right direction to get our debt under control, it is not a substitute for the specific spending and tax policies required.  The Peterson-Pew Commission on Budget Reform, a project of CRFB, 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. The framework is designed to facilitate and enforce a comprehensive fiscal plan with specific deficit reduction policies. 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 -- see our Fiscal Toolbox and one-stop resource for analysis of the various budget process tools available. We applaud Rep. Amash for his thoughtful attempt to address some of the criticisms of the typical balanced budget amendment.

 

 

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