The Balanced Budget Amendment Fallacy

July 30, 2011

Not much, if anything, would be worse for all of us than a balanced budget amendment. Never mind how you feel about government, taxes and spending. Forget about the politics. Simply, the effing thing can’t work.

Budgets are devices that allow people to plan. In government-speak, however, a balanced budget law mandates that an entity not spend more than it collects. Fine! Anyone who lacks credit knows all about not spending more than what’s in the till. (Can you spell “Got any spare change?”) So what’s wrong with telling government it cannot spend more than it has? Lots, if what you’re doing involves more than simply expressing the notion that you oppose borrowing lots of money you don’t have!

Most governmental bodies budget for fiscal years, whether they run from July to June or November to October. A few budget for two years at a time, but let’s stick with the more common approach. Suppose a governmental body thinks it will collect $2 trillion per year. That money comes from taxes, fees, income from national parks, etc. Smart people estimate the revenues by making assumptions. No problem so far, but if $2 trillions is the estimate, planners should not plan for more than $2 trillion in expenditures. Still no real problem. Truly, and I’m pretty liberal! Congress and the President will have to suck it up and tell people they can’t have this or that, and they will need to raise tax rates on the most financially successful Americans to reach equilibrium, but none of that should seem impossible? Really! Go back to the 1990s and study up a bit. President Bill Clinton and Democrats in Congress, with no help from Republicans on the income side and some more than gentle prodding on the spending side, pulled it off, and for more than a moment or two. So, to those who are really after less borrowing, an amendment to the venerated Constitution need not pass the Senate and House by two-thirds majorities, and need not be ratified by the legislatures of 38 states.

If a Constitutional amendment need not be passed to accomplish the worthy goal of borrowing less over a long period of time, what’s the problem with passing one? It’s really very simple:  When the government adopts a budget, it makes educated guesses about income and expenditures. In a $16 trillion economy, how likely is it that all of those numbers will end up spot-on? Not very!!! (How close do you get to estimating how much you’ll spend during a vacation day at the beach?) And no one knows, for the year, how things will turn out until the year ends. Forecasting lets the people in charge make corrections along the way, but if we’re talking about the federal government, just exactly how does that work. “Revenues are off this month, so close down the FAA; if things pick up, it can reopen next month.” “That hurricane last week was a doozy. No health care payments for awhile.”  Etc.

Governments cannot function without a cushion to smooth things out. And, when any enterprises lacks an adequate cushion, it loses its ability to make good judgments and often its costs increase. Laying people off and rehiring them is expensive and, in many instances, will result in revenue losses. (When the Republicans shut down the FAA last week, the government stopped collecting airline taxes–the airlines, in the main, are pocketing those sums–and airport projects have stalled. When they start again, damaged equipment will need to be replaced, work will need to redone, etc.)

That all sounds pretty bad, and I’ve spared you the bad examples, like not maintaining the military, not paying Social Security or Medicare bills, and stuff like that there. But there’s more, and this is the really bad part. Who will decide, if revenues do not cover appropriated expenditures, who gets paid? The Amendment says nothing about this issue, except for provisions that allow the Amendment to be ignored if a declaration of war is in effect, or–or is it and, as the Amendment is ambiguous–when the country is involved in a military conflict. Presumably, only the courts can resolve these issues. Congress cannot act, and the President has no power. It’s hard to imagine the House of Representatives, with a Republican majority, wanting the hated, un-elected, undemocratic autocracy that is the federal judiciary deciding how money should be spent. Who else, though? The gang of this or that many? Some Congressman who knows it should be this way or that? (One friend of mine suggested across the board cuts. So we’ll have a federal judiciary on half-pay, a plan that violates the Constitution. Prisons half-staffed. One pill per day, so old people will die, but not as quickly. Really?)

People are frustrated, and the comment I hear most often is “at least they’re trying something.” F for effort, for often the best solution is “don’t do something, just stand there.” The nation’s problems can be solved, but the solution requires an acknowledgment that the problems are not simple, that they are long in the making and, therefore, will take years to solve, and that we all have to be part of the solution, not just “those lazy-ass people who are sponging off of ME!”

The Balanced Budget Amendment is a lazy, poorly thought-out attempt to solve a problem, so that its authors and proponents can kick some ass and feel good about themselves.


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