Don't Link Debt Deal to Budget Amendment

More than a few conservatives are floating the idea that the passage of a balanced budget amendment should be the price for raising the debt ceiling. Without seeing the particulars of any amendment, it’s impossible to get really specific but most of the proposals I’ve seen --requiring a balanced budget each year; requiring it while simultaneously imposing a tax cap, requiring the balanced budget and limiting federal spending to 20.6% of gross domestic product—have severe problems.

Balanced budgets, in general, are a good idea and the Republicans have been far too timid in moving towards one. (Not even Paul Ryan proposes one.) But, particularly absent a specific plan to balance the budget, a balanced budget amendment won’t do much on its own because it’s sure to have big loopholes, could actually prevent more sweeping budget process reforms, and may take up political capital that could better be spent on other things.

The loopholes first: Nearly all balanced budget proposals I’ve seen include a few loopholes—most prominently for “war”—and everyone agrees that this is a good idea. Would the United States have wanted to have its fiscal hands tied right after Pearl Harbor or even 9/11?  Although saying that the United States hasn’t had a “real war” since World War II is a favorite talking point amongst isolationists, it really isn’t true: Congress approved bills authorizing the Korean, Vietnam, Afghanistan, first and second Iraq wars.  In fact, by any commonsense definition, the United States is at war in Afghanistan, Iraq and arguably on the Korean peninsula.

Even though the more recent bills allowing the exercise of violence against foreign powers weren’t headlined “declaration of war” they had the same consequences as one and, if the matter came to court, it would probably be ruled that any “war” provision rendered the entire amendment toothless. On the other hand, a bill without a “war” exception would present severe problems of its own.

Other loopholes will probably emerge too: all states but Vermont have their own balanced budget provisions but some states with very strong legal language (California) never actually balance their budgets while some with weaker requirements (Virginia) always do so.

Second, even setting aside Keynesian ideas of pump priming and balancing the budget over the course of the economic cycle--while oversold on the Left, they’re not entirely worthless--a balanced budget amendment that required a year-to-year balance in the budget could actually be an impediment to more extensive and beneficial budget balancing methods.

In principle, there’s a good case for running a surplus each year on an operating budget that would cover salaries, entitlement benefits, interest on debt, military operations and the like but financing many public sector capital investments—roads, bridges, rail lines and military hardware—over the long term.  These things get used over the long term and, provided interest rates aren’t too high, it makes eminent sense to pay for them over time.

To do this, Congress could create a unified national capital budget which would balance itself only over the long term (and then with help from operating budget surpluses in good times) to replace the uneasy patchwork of perennially under-funded “trust funds” and yearly appropriations the nation currently uses for capital costs. In fact, issuing this kind of debt is probably a necessary function of government: even jurisdictions like Colorado, Arizona, and the Canadian province of Alberta that say they are “debt free” still issue it. (Debt just refers to “general obligation” bonds that commit the jurisdiction’s “full faith and credit.”)  But the wording of most balanced budget amendments I’ve seen probably won’t allow this type of financing.

Finally, even if an amendment were to be ratified by the states, it would obviously not solve deep budget problems.  Right now, neither party has presented a credible proposal to bring the budget into balance any time in the next 20 years. Actually getting to a balanced budget any time soon—which everyone favors in theory—will require doing things like raising taxes, cutting entitlement benefits, and slashing defense spending; things both parties are reluctant to do in practice. Thus, by pushing for an amendment rather than true substantive changes (particularly entitlement reform), those who favor an amendment promise to spend lots of political capital without substantive changes.

A balanced budget is a good idea and the nation should work towards one. It’s possible that some formulation of a balanced budget amendment could even help get Congress there.  But the current proposals for balanced budget amendments have enormous problems.

Tweet