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Do We Need A Balanced Budget Amendment?

Day 4 of 5
By Melvin Dubnick
PoliticsNow Classroom, Feb. 20, 1997

In his fourth installment in the Exchange, Tim Penny addresses a different concern about the BBA raised by opponents: the power its passage would give to the judiciary. The argument addressed is that ultimately it will fall to the Supreme Court to interpret and enforce the amendment. Penny counters that this is not likely to be the case, for Congress will design a new budget law to guarantee compliance with the amendment's provisions. In addition, the Court historically has been deferential to congressional decisions on these matters. In addition, the provisions of the amendment are clear enough to avoid such problems.

In her Thursday installment, Karen Paget raises issues about the nature of the long term debt that drives the call for a balanced budget amendment. She finds that what seems horrific on the surface is not quite as ominous when carefully examined. First, she believes it likely that a restructuring of Social Security and Medicare will take place, thus lowering the gross predictions of the future debt's size. Paget then turns to the work of economists who contend that the financial condition of the U.S. will remain strong despite the projected debt, including one source who contends the debt could be a positive legacy to future generations. After suggesting some relevant readings on these positions, she offers support for her earlier contention that the BBA would not allow for government savings.

Reponding to Karen Paget's points, Richard Lamm notes that his difference with her is rooted in the definition of the problem. Defending his estimate of the project debt, he contends that the published figures are posted by "self-serving politicians" and are not to be believed. He does agree that the problem ought to be handled legislatively, but he doesn't really think it will happen unless there is a BBA to force the needed -- and politically painful -- initiatives.

Dick Lamm:

Karen rightly raises an important question: Which policy option is a solution to which problem? Perhaps our biggest disagreement is not with the solution but with the definition of the problem. I do not believe that the most important measure in determining the seriousness of the deficit is its published ratio to the GDP. My generation has been cooking the books for 30 years.

The most important factor to me (a non-economist but a C.P.A.) is the size of the real debt I am leaving the next generation. My generation has been masking the real federal deficit and the real federal debt. One way to see this impact is to observe that in l98l the U.S. had a $l trillion debt in a $3 trillion economy; in l986 it increased to a $2 trillion debt in a $4 trillion economy; in l992 we had a $4 trillion debt in a $6 trillion economy; and in l997 we have a $5.4 trillion debt in a $7 trillion economy. In a few short years debt has increased from one-third the GDP to five-sevenths. We are maintaining our level of government services by pre-spending our children's money.

The current political system has fashioned a Faustian bargin for the nation. We give the public current prosperity and current living standards by borrowing from the future and creating unimaginable debt for our children. But as Robert Lewis Stevenson has said "Sooner or later, we all sit down to a banquet of consequences."

But the $5.4 trillion is the published federal debt. Actually when you look at the real obligations we are leaving the next generation, we see that the true burden has to include unfunded liabilities. When you add in the unfunded liabilities of the various retirement systems and Medicare and Social Security you get what I claim is a $l4-$l7 trillion debt. Do not be misled by the published figures by self-serving politicians. We have been lying to you for years. As Tim Penny has pointed out, the actual increase in the federal debt every year is far more than what we admit to in the published figures. Like the man who knew seven languages and had nothing to say in any of them, the published figures for the debt and deficit are meaningless, however impressive sounding.

I look to the costs of the future" that our children will have to pay off for benefits we received. Here is the real reason for some constitutional backbone. We have run up an albatross of debt on the future and whatever fiscal flexibility we lose in passing a balanced budget amendment is made up for by the symbolic and real importance of a constitutional demand for fiscal responsibility.

Would it be better to balance the budget legislatively? Of course! Do you really think it will happen? Few do--the political pain is too great. It's like leaving the landing lights on for Amelia Earhart--a triumph of hope over reality.

Karen Paget:

I decided to pause and review our submissions to date, so that we are really engaging the issues raised.

To date, I think Dick's position on the amendment comes down to aggregate debt and his belief that it will result in an "almost inevitable economic collapse," or, more temperately, "economic instability." His major metaphor for government spending is that of a drug addict with a credit card, his economic cocaine.

Tim, not unlike Dick, says his support for the amendment rests on issues of generational equity. His major metaphor is that of "fiscal child abuse."

Since both of them place debt at the center of their arguments, and both argue that our children's future has been fatally jeopardized by such debt , I want to return to the issue of debt, economic health, and our children's future.

Neither Dick or Tim has addressed the issue of how to assess the seriousness of deficit spending or cumulative debt, issues raised in my first response. Using different numbers--ranging from 4 to 17 trillion dollars--they assume our collective response should be horror. I would be the first to admit they do sound horrifying, and had I not spent the last 18 months exploring these issues, I might similarly rely on the shock value of such numbers.

However, for starters, let's separate accumulated debt from future projected spending in Medicare and Social Security, on which some of the higher numbers are based. While we are all concerned that these programs be restructured, to assume the only scenario is that they will not be shouldn't be our only approach.

The current debt is $3.8 trillion. Before laying out how some analysts assess its significance, let me stipulate that in no way do I think we can sustain unlimited debt, just as I do not think it appropriate to run deficits that exceed a certain level of economic growth. Here's an assessment, taken from a much longer piece, from Richard Kogan (formerly of the Center on Budget and Policies Priorities-CBPP, now with the House Budget Committee), and Robert Greenstein (MacArthur genius recipient and director of CBPP):

"This [the debt] equals 50 percent of the Gross Domestic Product and 15 percent of national wealth. How serious a problem does this pose? A household analogy may help. The current situation is somewhat analogous to that of a household with annual income of $60,000 that has debts, such as a mortgage, totaling $30,000 and savings and investments worth $230,000. Such a household would be considered to be in solid financial shape, and its debts would not be considered excessive. Similarly, the current federal debt, while substantial, does not pose economic dangers."

What about our children? Consider the words of Robert Eisner, former President of the American Economic Association (and who recently helped organize a statement in opposition to the amendment signed by 1100 economists. )

First, Eisner reminds us that unlike private debt, "we," the public, own this debt. (No more than $600 billion is owned by foreigners.) Precisely because it is public, it doesn't become "due." Eisner: "Should we worry that we may have to pay taxes to pay the interest on the debt, or even to pay it off? Both are unlikely events since the debt is most likely to be rolled over and the interest financed by further borrowing."

Second, he asks, "But to whom would that interest or payoff be made?" His answer: "To us, if we wait long enough, to our children!" Further, "The debt we will be leaving our children and grandchildren, hardly a burden, will then be their wealth." Specifically, he points out that "if continued deficits do not make it rise [the debt], it will constitute $3 trillion of assets--savings bonds and treasury bills, notes and bonds -- held directly by our children and grandchildren, or indirectly through their pension funds, insurance policies and bank accounts. If that debt did not exist, other things being equal, our children would be that much poorer."

Finally, since almost everyone debating the wisdom of an amendment invokes a hallowed ancestor, so, too, does Eisner: "As Abraham Lincoln said 131 years ago, with apparently undue optimism with regard to public understanding, 'The great advantage of citizens being creditors as well as debtors with relation to the public debt, is obvious. Men can readily perceive that they cannot be much oppressed by a debt which they owe themselves.'" Now, to my mind, Eisner raises some fundamental equity questions, but they relate primarily to the unequal distribution of wealth our children will inherit, a situation that neither an amendment nor a balanced budget will rectify.

I'd like to suggest a couple of sources for further reading regarding debt, deficit spending, economic growth, and the current debate over Keynesian economics:

Lastly, a note to Tim: A recent analysis by the Congressional Research Service confirms my contention regarding the prohibition against savings under a BBA. You could theoretically save; i.e. take in more revenue, but under this version of the BBA, you could not expend these savings. See February 5th memo from the American Law Division. Also, re: the relationship between states' fiscal discipline and balanced budget requirements, see Richard Briffault, "Balancing Acts," (Twentieth Century Fund). He examines this fallacy. His conclusion: markets discipline state spending, not balanced budget requirements.

Tim Penny:

Though Karen and Dick have not yet raised the issue, I want to discuss in this submission the matter of Supreme Court interpretation and enforcement of the balanced budget amendment. When I first campaigned for public office in 1976, I recall loud voices of opposition to the proposed equal rights amendment on the grounds that we could not trust the Supreme Court to properly interpret and enforce the principles of equal rights for women in our society. As a supporter of the equal rights amendment I was discouraged to see how effective this argument was in stalling ratification of the amendment. Similarly, most critics of the balanced budget amendment now raise the specter of the Supreme Courts rewriting the national budget. I think these concerns are overstated.

Of course the Supreme Court will interpret the BBA. However, it does not necessarily follow that the Court will then take it upon itself to dictate taxing and spending policies. Article 1 of the Constitution preserves these powers to Congress, and in interpreting compliance with the BBA the Supreme Court will not disregard the Congress' Article 1 authorities.

Congressionally enacted laws are subject to Supreme Court review and must be consistent with the principles enunciated in the Constitution. This is the essence of our American system of government. A few examples will help illuminate the point. The Constitution in Amendment 14 stipulates that all Americans are entitled to equal treatment under the law. Nearly 100 years later, the 1964 Civil Rights Act spelled out the role of the federal government to assure compliance. Amendment 15 guarantees the vote to Americans of color. Again, nearly a century later, the Voting Rights Act stipulated the standards, incentives and penalties that apply in those instances where voting rights have been abridged. In each of these examples, the laws were developed to adhere to a constitutional principle.

Most pertinent to the issue of the balanced budget amendment is the ongoing power struggle regarding Article 1 and its grant to Congress over power of the purse. In this regard, the 1974 budget act was enacted to restore to Congress its constitutional authority to determine taxing and spending policy.

After decades during which the executive (president) encroached on congressional turf regarding budgeting, the 1974 act restored congressional primacy in this area. Then-President Nixon, (following the example of his predecessors) impounded, transferred and deferred funds duly authorized by the Congress. Unlike his predecessors, he took these powers to the extreme. The 1974 act limited the president's authority; provided that no funds could be deferred beyond the fiscal year for which they were appropriated; required explicit congressional approval or statutory language for any transfer of funds, and required a separate congressional vote, within 45 days, to approve rescissions or cancellation of funds (absent such a vote no rescissions were allowed). The 1974 budget act also created the Congressional Budget Office (CBO) to provide Congress the expertise to develop its own budget, thereby counterbalancing the president's expertise in this area.

All of this is meant to demonstrate that laws are frequently written to carry forward and implement constitutional principles. In much the same fashion, it is a certainty that Congress will approve a new budget law to guarantee compliance with balanced budget amendment.

I believe the Gramm-Rudman law with its sequestration provisions could serve as a model. During the several years in which Gramm-Rudman was in effect, deficits declined dramatically. Congress might also consider another budget proposal recently introduced by congressmen Barton and Stenholm. This measure would require a joint budget resolution of Congress signed into law by the president, as opposed to current practice in which the president submits a budget and the Congress is free to develop an entirely different budget. The upfront agreement between the Congress and president on the broad principles of the budget would then narrow the debate to specific details. The legislation also reserves a sequestration process to adjust the budget in cases where overspending occurs.

As a co-equal branch of government, Congress is given special deference by the Supreme Court. The Supreme Court would not be inclined or consider itself empowered to cast judgment on which specific spending items cause a deficit or which taxes or cuts are needed to eliminate a deficit. Any court ruling would be based strictly on the failure of Congress to adhere to the constitutional requirement. What is that requirement? Simply that a three-fifths vote is needed to approve a budget which is not in balance or to increase the level of government borrowing. If Congress fails to adhere to this requirement, the Court would refer the matter back to the Congress for corrective action.

The language of the balanced budget amendment is clear and unambiguous. Rather than wait for a Supreme Court ruling, I am confident Congress will take preemptive action by enacting legislation to ensure that budgets remain in compliance with the constitutional standard.