Posted on Tue, Jul. 19, 2011
last updated: March 15, 2013 11:57:45 AM
WASHINGTON — When Washington's gotten snarled in budget impasses over the past 30 years, one perennial favorite remedy is to amend the Constitution to require the federal budget to be balanced. Republicans in Congress have dusted it off again, and it's front and center in today's debate over deficits and debt.
But experts left, right and center warn that however appealing the idea may sound, it's highly impractical in reality. And it would make economic crises such as the one in 2008 much worse by tying the government's hands when intervention is needed most.
Five Nobel Prize-winning economists joined forces Tuesday to send a letter to congressional leaders warning against adopting a balanced-budget amendment.
"A balanced-budget amendment would mandate perverse actions in the face of recessions. In economic downturns, tax revenues fall and some outlays, such as unemployment benefits, rise. These so-called built-in stabilizers increase the deficit but limit declines of after-tax income and purchasing power," economists Kenneth Arrow, Peter Diamond, William Sharpe, Eric Maskin and Robert Solow wrote. "To keep the budget balanced every year would aggravate recessions."
The idea of changing the Constitution to require a balanced budget holds appeal because it appears to force lawmakers to live within their means. Every U.S. state but Vermont now requires a balanced budget from the governor and/or the legislature. Yet many of these states have found creative work-arounds.
"I've always been against it, because at the state and local level it creates an incentive to create all sort of off-budget enterprises like turnpike authorities ... housing authorities, hospital authorities, to avoid the implications of the balanced-budget amendment," said Rudolph Penner, who directed the Congressional Budget Office from 1983 to 1987 and is now a senior researcher at the Urban Institute, a centrist research center.
This isn't something that politicians of either party advertise when they're touting a balanced-budget amendment. Off-budget, quasi-government entities abound in Illinois, President Barack Obama's home state, and in Virginia, the home of Republican U.S. Rep. Eric Cantor, the majority leader in the House of Representatives. Off-budget spending allows government to tax and spend without it counting in the broader budget.
"It makes the state budgets very difficult to read and understand, with all these entities off-budget," Penner said.
Congress evades budget constraints now by calling certain spending "emergency" funds, outside the rules. A constitutional amendment that required the budget to balance similarly would be an incentive to Congress to evade the law.
In the 1980s, Robert Bork, a prominent conservative constitutional scholar and judge, argued against such an amendment because he feared it would lead to conflicting court opinions and lengthy litigation. He feels the same today, arguing also that lawmakers risk weakening their constitutional mandate.
"I don't know that you want to turn the federal budget over to the judiciary," Bork said in an interview, warning of risks in making government spending subject to automatic cuts. "I fear that if cuts are to be made, they'll be made to the armed forces, which could be disastrous."
David Walker signed off on the nation's finances as comptroller general from 1998 to 2008. He supports a balanced-budget amendment if it includes clear definitions of what triggers budget cuts and where.
"Intellectually, I'm fine with the concept of a balanced-budget amendment provided that it's realistic as to when it would be effective and that it provides the exceptions for circumstances like a formal declaration of war and a few other circumstances of which you might have to get a super-majority both in the House and Senate and the signature of the president," he said.
Walker would like to see requirements that trigger budget fixes at a ratio of $3 in temporary spending cuts to $1 in temporary revenue increases when budget targets are missed.
Beyond the merits, a balanced-budget amendment would be an ugly admission that Congress doesn't trust itself to show restraint on taxing and spending.
"A balanced-budget amendment for the Constitution is a really bad idea because it presumes we know what wars we might fight, what economic or natural disaster like a tsunami might affect us from abroad, and gives absolutely no ability for the government to adjust to circumstances," said Steven Bell, who was staff director of the Senate Budget Committee from 1981 to 1986, when it was chaired by New Mexico Republican Pete Domenici. "It's a straitjacket. There isn't another developed country in the world that would do that. It really is just a terrible idea."
Now a senior director of the centrist Bipartisan Policy Center, Bell favors ending the need for Congress to set a debt limit, instead of passing a balanced-budget amendment.
"I've come to the conclusion ... that Congress cannot be entrusted with this responsibility anymore," he said, citing the hyper-partisanship of recent weeks.
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