The Arguments for and Against a Balanced Budget Amendment

If the U.S. government were being graded on its budgeting skills, it would be sent back to elementary school for a brush-up on basic math.

For 63 out of the past 75 years, the federal government has operated under deficit spending. During both good and bad economic times, the U.S. government has been largely unable to balance its budget.

On a historical basis, the most significant budget surplus ever recorded was $236.4 billion in 2000, and the largest budget deficit exceeded $1.4 trillion in 2009. Cumulatively, the red ink is staggering: on an inflation-adjusted basis, the net deficits over that time span added to $19 trillion. It’s patently clear why the U.S. national debt is now $18 trillion — and counting.

Does a balanced budget really matter? Some say yes, others say no. The following are summations of the arguments for and against requiring a balanced budget from each side of the divide.

A Balanced Budget Mandates Fiscal Responsibility

The “power of the purse” belongs to the House of Representatives. The House generates and passes appropriations and spending bills, as per the U.S. Constitution:

“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”
— U.S. Constitution, Article I, section 9, clause 7

Presidents tend to receive the lion’s share of blame for budgetary woes, but in actuality it’s been Congress that has been unable to either raise revenues and/or decrease spending sufficiently to stave off persistent deficits. The litany of budget deficits over the past 75 years is prima facie evidence that Congress simply cannot police itself.

The following bullet points summarize the arguments for a mandated balanced budget:

• A mandated balanced budget would force fiscal responsibility, just as households and businesses are required to manage theirs.
• Bonds and other instruments owned by foreign creditors represent a growing vulnerability, both politically and with respect to a future debt crises.
• On a short-term basis, the interest on the national debt is crowding out the ability to spend finite resources more productively.
• Over the long term, as the national debt continues to rise, the risk of default and economic catastrophe grows in concert.

In short, those that believe the U.S. urgently needs to get on top of its finances are convinced that a balanced budget represents a key catalyst toward doing so. They are certain that a balanced budget amendment — which was defeated by one vote in the Senate as recently as 1997 — is the answer.

A Mandatory Balanced Budget is Bad Politics and Economics

Those against a balanced budget amendment believe that it would not only tie hands politically, but represents bad economics in general.

Although widely credited for being the last administration to achieve budgetary surpluses (1998-2001), President Bill Clinton was openly against a balanced budget amendment. In fact, Clinton was instrumental in its non-passage by convincing former advocate Senator Tom Daschle (D–SD) to vote against the measure in 1995. It was ultimately defeated by a single vote. Two years later, it failed once again.

Opponents of a balanced budget amendment believe that such a measure would tie hands during times of economic or political stress, possibly leading to disastrous consequences. The following bullet points summarize their position:

• The U.S. would have little or no room to maneuver during exigent circumstances (wars, recessions), which could threaten security as well as lengthen economic downturns.
• Government accounting does not equate to household or business accounting, rendering the comparison between them moot.
• Troubling questions about how to account for trust funds like Social Security as well as government-guaranteed programs would be raised.
• It’s political gimmickry, not sound policy.

In summary, although seemingly reasonable, a balanced budget amendment would leave political leaders no choice but to cut spending and raise revenues during downturns — the exact opposite of what most economists espouse — thrusting the country deeper and deeper into economic calamity. They point to Franklin Delano Roosevelt’s attempt at austerity in 1938 as a painful example, as an already-weak economy shrunk 3% that year and unemployment skyrocketed from 14% to 19%.

Will a Republican-Led Congress Finally Pass a Balanced Budget Amendment?

Following the sweeping Republican triumph in November, a new Congress will begin session in January. For the first time in eight years, Republicans now control both houses of Congress.

As a result, the opportunity to pass a balanced budget amendment has been resurrected. Already, cries for a balanced budget are reverberating throughout the Beltway. “We must produce a budget that achieves balance within 10 years,” said Alabama Senator Jeff Sessions.

That being said, getting it done won’t be simple. According to The Committee for a Responsible Federal Budget, $5.5 trillion in savings and/or new taxes would have to happen in order to balance the budget by 2025, and that assumes no further tax cuts or spending bills pass that negatively impact the budget. Cuts of that magnitude could tip the country into a recession, which would further  reduce tax revenues and increase deficits.

Ironically, in the worst case scenario, a good faith attempt to fix the country’s long-term finances could end up being very bad politics with frustrated voters casting aside incumbents right and left in future elections.

What is the correct path to take? That’s yet to be decided, but there is a right answer, and it’s up to the political leaders to craft it in such as way as to fix the government’s finances without wreaking havoc, either politically or economically.

As John F. Kennedy once said, “Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.”

Editorial Note: Article edited for accuracy regarding Presidential Veto Power April 24, 2015.