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Do We Need A Balanced Budget Amendment?

Day 5 of 5
By Melvin Dubnick
PoliticsNow Classroom, Feb. 21, 1997

In her concluding installment for this Exchange, Karen Paget addresses some of the many questions that readers submitted during the debate. Among these are issues related to economic growth, entitlement programs, the alternative of tax limitations, and the question of budget size and budget balance. In response to Tim Penny's point on the role of the Supreme Court (see his Thursday contribution), Paget notes that the question of institutional roles remains an open issue even among legal scholars.

Richard Lamm's final entry in this Exchange reasserts his view that the wisdom of deficit-spending strategies needs to be reconsidered in light of the current situation, and that they pose a danger today that requires constitutional discipline. He reflects on the value of Colorado's BBA when he was governor, and argues against some of Karen Paget's proposals (e.g., a national capital budget) as one of several gimmicks that do not address the real problem. He ends with the contention that Paget "overestimates the ability of the political process" to deal with the problem. The system needs "constitutional help."

In this final round of the Exchange, Tim Penny addresses some "loose ends" and responds to several of Karen Paget's points from previous days. Expressing his disappointment that her arguments have been against balanced budgets per se, he argues that the key problem is that deficits have become a "permanent fixture" in the federal budget and only a BBA will generate an "honest budget" reflecting tough choices. The BBA would force policy-makers to factor in the "least powerful constituency of them all-our children" in determining spending priorities.

Dick Lamm:

Like Von Clausewitz's generals, we too often fight the last wars.

We live in the afterglow of the New Deal. That event was so powerful, so seemingly right for its time, that it mesmerizes us to this day. But yesterday's solutions become today's problems and the New Deal is preventing us from correctly assessing the danger that deficit spending has come to pose for our society.

Deficits can help a nation or destroy a nation. They are a double-edged sword, and we must evaluate in this Exchange whether they are worth the risk they pose to our society., Yes, deficits helped in the l930s and, yes, it would be hypothetically be nice to continue to have them available. But they have become a Faustian bargain. The price of having deficit spending available during an economic downturn is to endure and even encourage deficit spending year and year after year. The mere availability of the cure makes worse the very danger of the problem. Thus while Karen is correct that this was and even may be a useful tool, our society has shown that the price of having deficits available is higher than the price of changing the constitution and giving the process some demand for fiscal responsibility.

But like the man who knew seven languages and had nothing to say in any of them, it is more show than substance. The danger that deficits pose in the last third of this century is greater than any marginal help they would in the event of a need for government stimulation. And remember that stimulation is still possible, it merely takes a super-majority vote of the Congress.

Colorado's balanced budget constitutional demand was very helpful to me. When someone wanted additional programs or spending, one could always yes-- but what taxes are you going to raise or what existing spending are you going to cut? That was often a deal-breaker.

Karen argues that the problem could be solved by a "capital budget". This is like the man who found he was 50 pounds heavy on the scale, but claimed in fact he wasn't too heavy, he simply wasn't tall enough. Yes, we can change the yardstick, but it would only encourage the political process in another way to avoid the responsibility they ultimately take. R. L. Stevenson says "sooner or later, we must all sit down to a banquet of consequences." So must this society. We can either downplay the problem, and talk about gimmicks to solve it, or we can be brutally honest and recognize that we've got ourselves a problem which will not be solved by conventional means. We need to demand of our public servants that they balance the budget and stop taking the easy way out at the long-term expense of the country.

Yes, we can balance the federal budget. No, we are not doing so at the current rate. No, it's not likely that the conditions will make this task easier. We can argue the size of the budget deficit but everyone agrees that with the retirement of the baby-boomers we face a special challenge. I suggest that Karen underestimates the difficulty of balancing the budget and overestimates the ability of the political process to solve it by traditional means. We have a very hard task to accomplish and we are going to need constitutional help.

Karen Paget:

Some final thoughts, and answers to questions that have come via email to the PoliticsNow Classroom:

Economic Growth: If, as the CBO study concludes, economic growth is marginally affected by deficits, that does not mean we shouldn't be concerned about economic growth, the health of the economy, productivity, wage rates, and other key issues, including growing income inequality. We should. But, how passing a balanced budget amendment will deal with any of these questions beats me.

Entitlement Growth: The future growth in Social Security and Medicare programs, we all agree, is unsustainable at the current rate, and is key to both a balanced budget and deficit control. Social Security is probably the easier of the two to "fix," primarily because a series of modest adjustments will ensure solvency until 2070. (For a non-apocalyptic overview of these steps, and more drastic proposals, see Ted Marmor, "The Great Social Security Scare," in The American Prospect (Nov-Dec, 1996 issue.) An amendment doesn't "fix" the program.

Medicare is a more difficult issue, in my judgment. Why it will pose difficulties stems in part from the way social policy-making in the United States is conducted. When Medicare was begun, powerful interests opposed the program, and it had to be structured to accommodate doctors, hospitals, insurance companies, and pharmaceutical corporations. Their participation in the program made it politically palatable; however, what was sacrificed were cost controls. Now, both political parties are struggling to control health costs, which do threaten us with greater deficits down the road. But, again, an amendment doesn't tell us what to do about Medicare.

Questions: One member of the audience raised the question of a different kind of amendment, one that would relate federal spending more directly to the health of the economy, and asked if we would favor that approach. In a word, no. But, first an historical note: it is interesting that the very first tax limitation presented to voters as an initiative, California Proposition #1, adopted this approach. It was inspired by one of then-Governor Ronald Reagan's appointees, Lew Uhler. That initiative failed at the ballot box, but it is considered to be a precursor to Proposition #13, passed in 1978, which generally marks the first success of the tax limitation movement. Uhler went on to head the National Tax Limitation Committee, and spearheaded successful initiatives in a variety of states. Many states how have formulas not unlike the one our questioner proposed.

My reasons for opposing these limitations are several fold: the intent behind them is to slow government spending, regardless of the condition of the economy, or the needs of people. Some advocates want only to shrink government, and dismantle many of the New Deal-style social programs. (See Robert Kuttner, Revolts of the Haves, written in the wake of Proposition #13, or more recently, Elizabeth Drew's two volumes on the budget battles of the Clinton administration, On the Edge, and Showdown; forthcoming is a fascinating book on the politics of the federal budget by two veteran reporters, George Hagar (Congressional Quarterly) and Eric Pianin (Washington Post) called Mirage.)

Underlying my stance is an entirely different view of government and its role. In many ways, that is what really is at issue in this debate. I find the degree of anti-government venom appalling (even if in specific instances anger is appropriate), and the debate over the size of government "silly." People rail about "big government" until floodwaters break their untended levees and destroy their communities, or until they eat contaminated food because health regulations were relaxed, or until their children can't afford to go to college, etc., etc. In my judgment, the important debate is over what functions the government should provide, at what level, and how they can be provided efficiently and effectively. But, if you hate government and want to constrain its ability to function, tax or spending limitations are a good place to begin.

For instance, a spending (not tax) limitation based on a formula was passed in the State of Washington, known as I-601. It took into account many variables, but neglected one critical one: per capita income growth. What is the effect? Regardless of how much the state's economy grows, regardless of how much more income its residents have, the spending limit prevents comparable growth in state expenditures. The net effect is that programs will not be able to keep up with inflation, effectively reducing current services over time. When combined with federal aid cuts as result of the attempt to balance by 2002, the state will lack not millions of dollars, but billions. This is just fine if you take the stance that government is "ipso facto" too large, but devastating to those who are trying to meet education, health and human service, or criminal justice needs.

Another questioner raised the relationship between budget size and balance, and was quite right to suggest that balance says nothing about size. A person who receives and spends a dollar allowance is "in balance." In the context of the balanced budget amendment, however, we don't start from scratch, so that in practice moving toward balance requires considerable spending cuts, in both nominal dollars and in the rate of growth. For instance, note that Clinton proposes to freeze many programs in order to support his education priorities and achieve balance by 2002. If you assume inflation is running at roughly three percent per year, over the next five years, those programs subject to a freeze will sustain a "cut" of 15 percent.

A short word about the amendment and the Supreme Court's role. Legal scholars disagree as to whether the net effect of Court interpretations would be: a) an increase in executive branch authority; b) an increase in Congressional authority; c) an increase in judicial involvement in budget-making; or d) prolonged gridlock or instability if the Court refuses to involve itself.

To conclude and reiterate: I believe that the analogies used to defend the balanced budget amendment are false, that most metaphors are misleading, and that the economic arguments are demonstrably false. Although there is merit in the political argument of "stop me or I'll spend," I'd rather choose our leaders more carefully than pass an amendment.

Tim Penny:

I want to use this final piece to clean up some loose ends.

Karen's discussion of "automatic stabilizers" mistakenly asserts that since foodstamps and unemployment compensation are automatically paid based on need, Congress does not vote on these items. During my 12 years in Congress, we frequently voted to extend unemployment benefits beyond the statutory limitation. On several occasions, we also voted to increase the foodstamp budget when we found the allotted fund was falling short of demand. Under a balanced budget requirement, a super-majority vote would be needed in cases where demand for these programs resulted in deficit spending. The point is that in my experience these measures always received support from a super-majority.

I have been generally disappointed to see that Karen's submissions have been essentially arguments against balancing budgets.

On Wednesday she wrote, "I am in favor of deficit-reduction strategies when deficits become too high." Sounds sensible enough. Notice she did not say "balanced budget strategies." We have not seen a balanced budget since 1969. The problem is not that some deficits are too high. The real problem is that deficit spending has become a permanent fixture on the national level. The underlying debt has quintupled since 1980 and the interest on this debt must be paid indefinitely!

Again on Wednesday, Karen asserted, "A budget isn't about numbers; it's about what and who we value." I agree. But Karen wrongly assumes that a balanced budget requirement would come at the expense of "less powerful" constituencies. She seems to presume that only deficit spending can guarantee that "safety net" programs are adequately funded. I disagree. For example, deficit spending facilitated then-President Reagan's tax cuts and huge Pentagon spending increases. His agenda would have been forestalled by a balanced budget amendment.

A balanced budget amendment would demand that all programs be financed within an honest budget. Every program would effectively be placed in competition with every other program. Avoiding tough choices through deficit spending would no longer be an option. Presently, the least powerful constituency of all-our children who have no vote and no political action committee-are being shortchanged. A balanced budget amendment would prevent today's constituencies from using the national credit card and sending the bill to our children.

Finally, Karen quotes noted economist Robert Eisner to make the point that somehow our national debt is actually an asset. Why? Because we owe the money to ourselves. As Karen puts it, '. . .unlike private debt, 'we', the public, own the debt." Huh? By extension of this logic, why not then fund the ENTIRE federal budget through borrowing?

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." Hmmmm.

Mad magazine's Alfred E. Neuman said it better: "What, me worry?"

It is bad enough that we now deficit spend for programs and services. Without a balanced budget amendment, it is all too likely that we will soon be fueling deficits to roll the debt and pay the interest.

Let me conclude where I began, by quoting Thomas Jefferson: "The question of whether one generation has the right to bind another by a deficit it imposes is a question of such consequence as to place it among the fundamental principles of our government. We should consider ourselves unauthorized to saddle posterity with our debts and morally bound to pay them ourselves."