CHN: Balanced Budget Amendment Would Threaten Critical Programs and the Economy

June 17, 2011

Under the guise of fiscal discipline, House and Senate Republicans are proposing a constitutional amendment to balance the budget.  On June 15, the House Judiciary Committee passed a balanced budget amendment along party lines (H.J. Res. 1, with a vote of 20-12).  In March, the Senate introduced a similar measure, S. J. Res. 10. The disastrous effect of these proposals – even more radical than when a balanced budget amendment (BBA) was last voted on in the mid-1990’s – would be to decimate programs that are part of our nation’s social contract.  Virtually all programs like Medicaid, Medicare, Social Security and other safety net programs would be dealt a severe blow.  To achieve a balanced budget these programs would have to be cut even more deeply than in the House-passed budget.  (See Human Needs Report from April 19.)  Service cuts are made all the more extreme because the amendments would make it extremely difficult to raise revenues.

These ill-conceived proposals would require a balanced budget each year and additionally would cap spending at 18 percent of the Gross Domestic Product (GDP) unless two-thirds of the members vote to exceed that amount.  Earlier BBAs in the 1990s did not impose a spending cap.  Spending by the federal government now comprises 24-25 percent of GDP.  By comparison, annual spending under President Reagan averaged 22 percent of GDP.  Since then the baby boomers have started to retire, our nation is involved in two wars, there is a new and costly Department of Homeland Security, and the economy is struggling to recover from the deepest recession since the Great Depression.  Both the House and Senate proposals would require a three-fifths supermajority vote to increase revenue, placing an intolerable burden on the spending side of the budget.

A BBA is problematic at any time and particularly onerous when the economy is weak.  During economic downturns there is an increased need for spending for unemployment insurance, food stamps, Medicaid and other social programs at the same time that revenues tend to fall.  Enforcing a BBA when the economy is weak by cutting programs would only exacerbate the problem, with more jobs lost and unemployment higher.  (For further details see the Center on Budget and Policy Priorities report “A Constitutional Balanced Budget Amendment Threatens Great Economic Damage.”)

Proponents of a BBA argue that since families and states must balance their budgets, so the federal government also ought to balance its budget.  But the comparison is inaccurate.   States balance their operating budget but may borrow money for capital projects like schools, roads and other infrastructure.  They may also store up reserves when the economy is strong for when downturns occur.  The proposed federal BBAs would not allow surpluses from prior years to be used to balance the current year budget and would not allow borrowing for capital projects.  Families often borrow to pay for unforeseen expenses or for investments in a home or the education of their children.

H.J Res 1 currently has 133 cosponsors.  Passage in the House requires the support of two-thirds (290 votes); final passage would also require a two-thirds vote in the Senate.  Bill proponents have indicated that they will not bring the bill to the floor until later this summer when they hope to have garnered the votes to pass the bill.  In a letter to House leadership, 103 members of the conservative Republican Study Committee have indicated that passing a BBA ought to be done in tandem with raising the ceiling on the debt, a vote that must occur by August 2 to avert financial disaster, according to Treasury Secretary Timothy Geithner.  House Democratic leaders doubt that the votes will be there to pass this version of a BBA.  Republicans could bring forth a less radical version which does not include a cap on spending.  The Senate has not yet scheduled a vote on their similarly extreme BBA proposal, which all 47 Republicans have cosponsored.  While the path to passage of these versions of a BBA seems highly improbable, less stringent but still harmful versions could also be brought up for a vote.  In 1997, a balanced budget amendment without a spending cap passed the House and came within one vote of passing the Senate.

Categories: Budget and Appropriations, Economy