The House plans to vote tomorrow or Friday on H.J. Res. 2, a balanced budget constitutional amendment (BBA) sponsored by Rep. Goodlatte (R-VA). The amendment is not new – it nearly came to the House floor over the summer, and similar amendments have been proposed many times over the years, especially in the 1990s. But amending the Constitution to require the federal government to balance its budget every year was a terrible idea then, and it’s a terrible idea today.
So terrible that a group of more than 1,000 economists, including 11 Nobel laureates, issued a joint statement in 1997 that said, “We condemn the proposed ‘balanced-budget’ amendment to the federal Constitution. It is unsound and unnecessary…[and] mandates perverse actions in the fact of recessions.”
So terrible that five winners of the Nobel Prize for Economics issued a statement in July opposing a BBA because of the negative effect it would have on an already troubled economy.
So terrible that Macroeconomic Advisers, a private economic forecasting firm, recently concluded that if a BBA had been ratified and were now being enforced for fiscal year 2012, “the effect on the economy would be catastrophic” and “recessions would be deeper and longer.” According to the report, if the budget were balanced through spending cuts in 2012, about 15 million more people would lose their jobs and the unemployment rate would double (from 9 percent to a staggering 18 percent).
Still not convinced? Here’s a recap of my top five reasons why the House should reject the BBA:
- A BBA would make it more difficult for states and families to balance their own budgets during hard times. Even states with their own balanced budget amendments only have to balance their operating budgets, not their capital budgets, which fund projects like roads and schools. States can borrow money and build up reserves to fund important investments — and so can families, of course. And both states and families would have a much harder time during recessions like the one we just (barely) came out of if the federal government couldn’t run a deficit. We all depend on the federal government to respond quickly to economic downturns and national emergencies, but H.J. Res. 2 would stall or prevent such government action by requiring a supermajority of Congress to approve spending in excess of revenues in any fiscal year.
- A BBA would force cuts to Medicaid, Medicare, Social Security, and just about every other program that ordinary people depend on. H.J. Res. 2 could require a balanced budget as early as 2018. That means the cuts required to comply with the BBA could be far more drastic than those in the budget passed by the House earlier this year, since the House plan wouldn’t bring the budget into balance until after 2030.
- A BBA would favor cuts to programs over revenue increases. By requiring a majority of all Members in each chamber (rather than a majority of those present and voting) to increase revenue, H.J. Res. 2 would make it easier to cut spending on programs than to raise taxes on millionaires.
- A BBA would raid the Social Security Trust Fund. H.J. Res. 2 provides that “total outlays for any fiscal year shall not exceed total receipts for that fiscal year.” In other words, under the BBA, savings don’t count. Spending and revenues have to match each year, and the amendment treats Social Security benefits and payroll contributions the same as other spending and revenues. As a result, even though Social Security has enough dedicated revenues and assets in its Trust Fund to pay 100 percent of promised benefits until 2036, Social Security benefits could be subject to cuts under H.J. Res. 2 to bring the overall federal budget into balance. Moreover, Social Security could not draw on its Trust Fund, which has been built up by the contributions of workers and employers over several decades to prepare for the retirement of the baby boom generation, unless the rest of the budget ran an offsetting surplus.
- A BBA would make it harder for government to function and actually balance the budget. As we have seen over and over in the 112th Congress, it is no easy feat to get a majority of Members of both chambers of Congress, as well as the President, to agree on a solution to even the most urgent and pressing problems. It seems highly unlikely that requiring additional votes to respond to crises or to raise needed revenue will make it any easier for our government to get things done. H.J. Res. 2 even requires a three-fifths vote to increase the debt limit and make sure the country can pay its bills!
Let’s hope our Members of Congress pay attention to leading economists – and plain common sense – and reject H.J. Res. 2.