Balanced Budget Amendment: Why I'm Glad to See It Didn't Pass in Congress

The Republican Party has cultivated the image of being the party of fiscal responsibility. Newt Gingrich certainly did so when he released his Contract for America back in 1994.  The House Republicans were continuing to cultivate that image when it failed to pass a balanced budget amendment (BBA) last week. You might think to yourself that I would be disappointed that such an amendment failed to pass because I consider myself "a deficit hawk." However, you would be wrong on that assumption. Why wouldn't I be disappointed? After all, the Congressional Budget Office (CBO) released its Budget and Economic Outlook: 2018 to 2028 earlier this week. Look below at the deficits that we're going to rack up in the next decade. It's enough to make my blood boil. Yes, of course we need to worry about high debt-to-GDP ratios. When government takes on massive amount of debt, the high interest payments made to pay of that debt slows down economic growth (e.g., Chudik et al., 2018; Afonso and Aves, 2015; CBO, 2014, p. 3-4; Cecchetti et al., 2013; Reinhart and Rogoff, 2010). Knowing that, I still think a balanced budget amendment is a bad one. Why?

Let's start with the procedural aspect of amending the Constitution before jumping into actual opposition. I looked at the possibility at repealing or modifying the Second Amendment a couple weeks ago. This comes with similar procedural hurdles. Per Article V of the Constitution, an amendment either needs two-thirds of votes both in the House and the Senate or a Constitutional Convention, the latter of which is convened by 38 state legislatures. Although the Republicans have control over both branches of the federal legislature, they are nowhere near getting the required votes to pass an amendment, as is illustrated by yesterday's vote. Aside from political feasibility, what issues does the BBA face?

Federal Version Stricter Than State Versions of BBA: As of 2015, 46 states and the District of Columbia had balanced budget requirements. The fact that BBAs are done on the state level can be used to advocate for a BBA on the federal level. However, it might not be so analogous. As the Center on Budget and Policy Priorities points out, BBA only applies to the operations budget. For state-level capital budget, borrowing is allowed. States also are allowed to save for a "rainy day" fund. This would not be doable on the federal level since a BBA "prohibits spending from exceeding revenue in that year (ibid)." Granted, there could be a "rainy fund" addendum. At the same time, these sorts of details act as another reminder as to why something this complex and subject to frequent change should not be a constitutional amendment.

Deficits Are Good From Time to Time: Proponents of the BBA argue that if families can tighten their budgets, so can the government. The government can and should tighten their spending, especially with current spending and debt trends. Conversely, families are allowed to borrow money to help finance their life. Debt is not inherently bad. I know I couldn't get through graduate school without taking some debt. The ability to successfully finance debt is what has helped so many individuals and businesses succeed. The problem is not debt so much as it is debt servicing and making sure that future generations are not burdened with debt.

Inflexibility: Sometimes, the government has to take on debt, whether in time of war, natural disaster, or a recession. Even if I have criticism about unemployment insurance and food stamps, the truth is that they exist and they have countercyclical demand during recessions (although that contention is contested). The libertarian Cato Institute concludes that procedural rules that are too inflexible to adapt to chaining circumstances prove less durable. I have to agree. I can still condone a more flexible fiscal policy while still call for greater fiscal responsibility.

Enforcement Issues: According to the Constitution, Congress is responsible for the budget. If Congress cannot balance the budget, could the President cut programs or raise taxes unilaterally? Would the courts? Would non-compliance go to the Supreme Court, thereby delaying the budgetary process further? Would the other branches of government be trained to adjudicate?

Questionable Economic Benefit: Proponents advocate for the BBA because the fiscal responsibility will cause better economic growth. I question that notion in the next point below. What I can say is that the restraint caused by a BBA can be problematic for the economy. In a recession, a BBA would either force spending cuts or an increase in taxes when the economy is weak. Economic forecasting firm Microanalytics wrote in 2011 if Congress had ratified a BBA in 2008 and it would have taken effect in 2012, the effects would have been catastrophic.

Dubious Fiscal Responsibility: This final concern is one that Congressman Paul Ryan (R-WI) brought up in 2011. It is mathematically possible to raise spending, raise taxes, and still have a balanced budget. If the goals are to minimize debt and to keep government small, this is not a guaranteed way to go about achieving those goals. Since there are not agreements on spending targets or what the size of government should be, the BBA does not fulfill its primary goal. And to think none of this gets into creating an incentive for politicians to use dubious accounting or budget gimmicks to meet budgetary requirements.

Even if the Republicans had the votes, why would there need to be a constitutional amendment? If the Republicans were the party of fiscal responsibility and maintained control, there is no need for such an amendment. If anything, the Republicans passing a budget in which the spending allows for trillion-dollar-plus deficits for the next decade is anything but fiscally responsible. It is hardly a stretch to argue that the balanced budget amendment was a gimmick by the Republicans to continue to cultivate an erroneous image of fiscal responsibility. This brings me to an even more important question: if we're interested in decreasing the debt-to-GDP ratio, why simply balance the budget? If the Republicans are genuinely interested in fiscal responsibility, there needs to be lowering taxes combined with lower spending in order to lower the debt-to-GDP ratio. As this Cato Institute paper on budgetary rules illustrates, there needs to be a framework and action for budget restraints. Or better yet, how about some entitlement reform to restrain spending? A BBA is not a substitute for working to reduce deficit spending. If the Republicans cannot focus on actual budgetary restraint, a BBA is nothing more than political pandering.