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Balanced budget amendment: deficit cure-all, political 'cover' or gridlock recipe?

This article first appeared in the St. Louis Beacon, Aug. 10, 2011 - WASHINGTON - Founding father Thomas Jefferson liked the idea. Former U.S. Sen. Paul Simon, D-Ill., championed it for years. Germany has one, and so does nearly every American state. And proponents of one version or another range from tea party stalwarts to moderate Democrats.

The concept that unites that disparate list is a constitutional balanced budget amendment (BBA). But these amendments have so many variations that the term itself can be misleading. While some supporters describe BBAs as deficit cure-alls, critics contend they mostly serve as political "cover" to mask specific budget-cutting decisions -- and, in some cases, limit the government's options in times of economic crisis.

One thing is clear: Under the debt-ceiling deal, Congress may well vote on a balanced budget amendment by year's end. The second phase of the debt-limit hike won't happen unless Congress adopts the deficit reductions recommended by a new "super committee" or approves a BBA. Lack of action on those options would trigger automatic, across-the-board cuts to military spending and some social programs.

Even though President Barack Obama and other Democratic leaders such as Sen. Dick Durbin, D-Ill., argue that a balanced budget amendment is not needed, surveys show that the idea is popular with many conservative and independent voters. But there are major hurdles to achieving a balanced budget amendment: It would need to be approved by two-thirds of the members of the Republican-led House and Democrat-controlled Senate. Even if a BBA is approved, 38 states would then need to ratify it, so that a BBA would likely not go into effect for several years.

All versions of the BBA share the same basic concept: a constitutional rule requiring that the government cannot spend more than its revenue in a given fiscal year. But contrasting versions have many different variations and exclusions -- including capping spending to a percentage of gross domestic product (GDP) and requiring supermajorities in Congress to approve any tax increases or any exemptions to the balanced-budget requirements.

House Republicans filed at least 10 different BBA bills this year, and several versions are in the Senate, including the major Republican BBA sponsored by Sen. Orrin Hatch, R-Utah -- and backed by Sens. Roy Blunt, R-Mo., and Mark Kirk, R-Ill. -- and a new Democratic BBA sponsored by Sen. Mark Udall, D-Colo., and cosponsored last week by Sen. Claire McCaskill, D-Mo., and others.

What follows is a brief history of the balanced budget amendment, a description of the main versions, and evaluations by economists and others of arguments for and against an amendment.

'Pay-as-you-go' Liberal Simon Backed Amendment

The first known congressional balanced budget amendment effort was led during the high-deficit New Deal by U.S. Rep. Harold Knutson, R-Minn., who introduced an unsuccessful joint resolution in 1936 that would have imposed a per-capita limit on federal debt.

But a study by the conservative Heritage Foundation reports that the first time a BBA got anywhere in Congress was in 1982, when a two-thirds majority of the Senate approved an amendment crafted by Sen. Strom Thurmond, R-S.C. The companion measure died in the House.

While conservative Republicans have tended to dominate the BBA debates over the years, a few "pay-as-you-go Democrats," such as the late Sen. Simon of Illinois, have also been leading advocates.

In arguing for the BBA, Simon liked to quote Jefferson, who wrote in 1798: "I wish it were possible to obtain a single amendment to our Constitution ... taking from the Federal Government the power of borrowing." At another point, Jefferson wrote that "one generation should no more be willing to pay the debts of a previous generation than to pay the debts of another nation."

During his tenure in the Senate from 1985-97, Simon worked with Hatch and Thurmond on a BBA, which in 1995 would pass the House and fail by just one vote in the Senate. It said federal outlays could not exceed total revenue unless Congress approved the excess spending by a three-fifths vote. The balanced budget rule would be waived if Congress declared war or voted that the nation was under military threat.

Among the U.S. House Democrats who voted for Simon's BBA in 1995 was Rep. Jerry Costello, D-Belleville. Last month, Costello voted against a different version of the balanced budget amendment that was included in the House Republicans' "Cut, Cap and Balance" bill. The measure passed the House but was tabled by the Senate on mostly party-line votes.

"In 1995, I was one of only 72 Democrats to vote for the balanced budget amendment considered by the House," said Costello in a statement explaining his vote. "I would vote for a straightforward BBA today," but he said the "cut, cap" version "does not meet this standard." Because "cut, cap" would hold government spending to 18 percent of GDP and exempt defense from major reductions, Costello contended it would "ensure massive cuts to Social Security, Medicare and Medicaid."

But conservative Rep. Todd Akin, R-Wildwood, contends that the "cut, cap" version of the BBA, which he cosponsored, was the right version of the amendment because it would help wean the nation from what he describes as its "addiction" to deficit spending.

"If the problem is radical deficit spending," Akin told the Beacon in a recent interview, "the solution that I know of that works politically is the same solution that's done in 40-something states. And that is constitutional amendments to balance the budget and limit the size of the government. That's what we do in Missouri, and it works well for us."

Akin was one of the Republicans who pressured Speaker John Boehner, R-Ohio, to add a balanced budget amendment to the debt-ceiling legislation, and Akin voted against the eventual debt compromise in part because it did not include the "cut, cap" version.

"While this new proposal has a balanced budget amendment as one option for a future debt ceiling increase," Akin said in a statement, "I do not believe that the president or Democrats in Congress will be willing to support a balanced budget amendment while there are other paths available to them that allow for continued deficit spending."

In the Senate, Blunt and Kirk both backed the "cut, cap" version of the BBA, which was adapted from the one championed by Hatch and cosponsored by most Senate Republicans.

On the Democratic side, McCaskill and several other Senate Democrats are cosponsoring Udall's version of the BBA, which Udall says could be voted on by the Senate later this year.

Economic impacts of a balanced budget amendment

Would a balanced budget amendment have made any difference in Friday's decision by the Standard & Poor's ratings agency to downgrade the U.S. credit rating from AAA to AA+ for the first time in the country's history?

Not according to S&P managing director John Chambers, who told CNN on Saturday that such a measure could end up harming more than helping the nation's credit rating. "In general, we think that fiscal rules like these just diminish the flexibility of the government to respond" to crises, he said.

The editorial boards of many national newspapers oppose a BBA. Opined the Washington Post in a recent editorial: "The constitutional cure, while superficially tempting, would be worse than the underlying disease. A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies. It would revise the Constitution in a way that would give dangerous power to a congressional minority."

While some economists view the BBA as a way to move the federal government toward a balanced budget, others worry about the restrictions on government action in the event of a severe recession or depression. Economist Robert Samuelson wrote that "the trouble with a constitutional amendment is that it would probably fail -- in the sense that it would not discipline government -- while having undesirable side effects."

Last month, five Nobel laureates in economics and other leading economists warned in a letter to Obama and congressional leaders of both parties that the "escape hatches" in BBAs requiring congressional supermajorities are "recipes for gridlock."

Those economists argued that most BBAs "would mandate perverse actions in the face of recessions. In economic downturns, tax revenues fall and some outlays, such as unemployment benefits, rise. These so-called built-in stabilizers increase the deficit but limit declines of after-tax income and purchasing power. To keep the budget balanced every year would aggravate recessions."

But House Speaker John Boehner, R-Ohio, and other BBA backers list several economists and political scientists who support the concept. A recent post on Boehner's website quoted economist Diana Furchtgott-Roth -- director of the conservative Hudson Institute's Center for Employment Policy -- as endorsing a balanced budget amendment because "additional certainty about fiscal policy would make investment and consumption decisions easier, and would facilitate economic growth and job creation." Several fiscal watchdog groups, including the National Taxpayers Union and Citizens Against Government Waste, also back a BBA.

Indeed, BBA proponents say, it is one of the only effective ways to restrain congressional spending. "House and Senate passage of the balanced budget amendment will make reckless borrowing a thing of the past and will ensure that our children enjoy futures full of opportunity," wrote House Majority Leader Eric Cantor, R-Va., in a recent op-ed.

But a balanced budget amendment might also spur court challenges. The same year that Congress came closest to approving a BBA, the Clinton-era Justice Department warned in 1995 that the lack of proper enforcement mechanisms in BBAs "could result in the transfer of power over fundamental political questions of taxing and spending to the courts. This would represent a substantial reordering of our basic constitutional structure." As an alternative, the department suggested less sweeping alternatives such as legislation allowing the president to veto line items in the federal budget.

One common argument in favor of a federal balanced budget amendment is that nearly every U.S. state has some sort of a balanced-budget provision. If BBAs work in most states, the argument goes, why not at the federal level?

For one, economists draw a distinction between federal and state budgets and powers. Unlike many state constitutions, which permit borrowing to finance capital expenditures, the federal budget makes no distinction between capital investments and current outlays. Some worry that a balanced budget amendment would prevent federal borrowing to finance spending for infrastructure, education, research and development and similar investments.

Also, the Nobel laureate economists contended in their letter, a BBA would invite Congress to enact what are called "unfunded mandates," requiring states, local governments and private businesses to do what the federal government is unable to pay for itself. A BBA also would open the door to "dubious accounting maneuvers" -- for example, selling more public lands and other assets and counting the proceeds as deficit-reducing revenue -- and other budgetary gimmicks.

A good example of BBA problems at the state level is Illinois, whose constitution requires that "appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year." Despite that provision and a recent state income tax hike, Illinois' budget is in the red -- by about $7.4 billion -- and the state faces massive liabilities for pensions and bond payments.

According to a Chicago Tribune analysis, Illinois has been able to get away with such deficits because legislative leaders have resorted to tricks such as deliberately underestimating expenses, overestimating revenue and applying the balance due into the next fiscal year, so that it does not count against appropriations going forward.

And, of course, the budgets of Illinois, Missouri and most other states are heavily subsidized by payments from the federal government for various programs.

Even so, there are examples of BBAs that work in other countries, such as Switzerland -- which has a much smaller and wealthier economy -- and more recently in Germany, which in 2009 amended its Basic Law (or constitution) with a BBA-like "debt brake" that applies to both the federal and state governments. Starting in 2016, the provision will bar Germany's national government from running a deficit of more than 0.35 percent of GDP, and four years later, the states will be forbidden from running any deficits.

Chances of Congressional Approval Appear Slim

While the House might be able to muster a two-thirds majority for some version of a BBA, vote-counters say chances of Senate approval appear to be slim. Already, both sides are laying the groundwork for political "cover" to defend their votes.

With indications that Republican political strategists plan to use votes against BBAs in their 2012 campaigns against Democrats, Udall's moderate version has attracted support from McCaskill and other Senate Democrats who face tough races, including Sens. Joe Manchin of West Virginia, Bill Nelson of Florida and Ben Nelson of Nebraska.

In her announcement last week, McCaskill called this BBA version "a responsible, commonsense plan that would hold Congress accountable, get the country's fiscal house in order, and make sure everybody has some skin in the game."

Udall, a centrist Democrat, said his amendment would:

  • require the president to submit a yearly budget that is balanced;
  • create a "Social Security lockbox" that protects Social Security revenue and outlays from any balanced-budget requirement;
  • prohibit Congress from giving income-tax breaks for people earning more than $1 million a year unless there are federal surpluses.

The balance rule would be waived if Congress declares war. It could be suspended in other cases only if three-fifths of the House and Senate vote to allow it.
Most Senate Republicans vigorously oppose Udall's BBA, in part because of the prohibition of tax breaks for the wealthy. If a BBA vote is triggered under the debt deal, they are likely to rally around the Hatch plan, which would limit spending to 18 percent of GDP and require congressional supermajorities to raise taxes.

While Senate GOP members would back the BBA, Sen. John McCain, R-Ariz., doubts that enough Democratic votes exist to reach the two-thirds threshold. In a recent Senate speech, McCain said that senators who believed a tough BBA could pass the Senate are "worse than foolish."

Prospects appear to be slightly better in the House. There, the two BBA versions with the most backing were developed mainly by Rep. Robert Goodlatte, R-Va. The stricter version — with the 18 percent limit and the requirement of a two-thirds vote in Congress to raise taxes — was in the "cut, cap" bill that House Republicans passed.

While that tough BBA "has broad Republican support," Goodlatte said recently that "it's not going to get the 290 votes needed" to meet the two-thirds requirement for a constitutional amendment to pass the House.

However, Goodlatte has said he has been talking with moderate House Democrats and he believes that some BBA version might attract enough votes to pass. He told the New York Times that there is "a tremendous amount of interest in this issue."

Contact Beacon Washington correspondent Robert Koenig.

Robert Koenig Beacon Washington correspondent

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