Will Congress Vote for Economic Catastrophe By Adopting a Balanced Budget Amendment?

Chuck Sheketoff

[Note: I have corrected an error in the original post regarding Rep. Kurt Schrader's position on a balanced budget amendment.]

In early August, Congress approved a last-minute deal to raise the debt ceiling and avoid a national default. The deal’s immediate $900 billion across-the-board budget cut and creation of a “super committee” tasked with coming up with an agreement for further deficit reduction garnered the most attention. But the agreement also included a requirement for Congress to vote on a balanced budget amendment to the U.S. Constitution before year’s end.

It appears that the U.S. House may vote on a balanced budget amendment as early as Wednesday. If so, let’s hope for a quick and certain defeat.

Back in June, OCPP explained why the balanced budget amendment is a dangerous proposal. The amendment, we said,

would sew into the Constitution an economic straitjacket that would leave our nation largely helpless in fighting recessions. Why? Because in a recession, consumers and businesses cut back their spending out of necessity or fear, stunting economic activity. The only entity with the ability to stimulate the economy is the federal government . . . unless a balanced budget shackles its ability to spend.

And because tax collections plummet during a recession, balancing the nation’s budget would require Congress to slash spending, raise taxes or both — just when the economy is weak. Deep spending cuts in a recession are the exact opposite of what good economic policy would advise. The result would be deeper and longer recessions, greater unemployment and more misery for the American people.

But you don’t have to take OCPP’s word for it.

A balanced budget amendment’s impact on the economy would be “catastrophic,” according to Macroeconomic Advisers, which provides nonpartisan analysis to corporations and government entities such as the President’s Council of Economic Advisers (under Presidents of both parties) and the Congressional Budget Office. Although Macroeconomic Advisers' recent analysis appears in a password protected site, the Center on Budget and Policy Priorities has published a short paper summarizing Macroeconomic Advisor’s analysis of the impact of a balanced budget amendment. The paper notes

If the 2012 budget were balanced through spending cuts, those cuts would have to total about $1.5 trillion in 2012 alone, which the report estimates would throw about 15 million more people out of work, double the unemployment rate from 9 percent to approximately 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.

A doubling of the unemployment rate and the shrinking of the economy by about 17 percent seem catastrophic, indeed.

There are many versions of the balanced budget amendment being discussed. But they all share in the same flaw — making it more difficult for Congress to help the country in an economic emergency.

Thus, it is unfortunate that several members of Oregon’s congressional delegation support some version of a balanced budget amendment.

Rep. Greg Walden is a co-sponsor of HJR 2, a version of the amendment that would require a three-fifths majority to eliminate the need to balance the budget in case of a national emergency.

Rep. Peter DeFazio, one of the House Democrats’ most ardent supporters of a balanced budget amendment, is also a co-sponsor of HJR 2.

According to his staff, Sen. Ron Wyden has not ruled out voting for a balanced budget amendment that would exclude Social Security, provide for a waiver during a declared war or when the U.S. is involved in a military conflict that threatens its national security, and provide Congress with "the flexibility" to waive the requirement if three-fifths of both chambers of Congress vote to do so.

It’s hard to take comfort in any provision that would give a minority (two-fifths plus one) in Congress the ability to block an effort to suspend the restrictions of the balanced budget amendment in case of an economic or other emergency.

Didn’t this summer’s raise-the-debt-ceiling showdown confirm that a minority of lawmakers are willing and able to hold our economy hostage and threaten economic Armageddon for political ends?

We thank Sen. Jeff Merkley and Reps. Kurt Schrader and Earl Blumenauer for expressing that they do not support a balanced budget amendment, though we remain concerned that Schrader supports a spending-cap measure that would also unwisely impose an economic straitjacket on the nation.

[Correction: I erroneously included Rep. Kurt Schrader among those expressing opposition to a balanced budget amendment. This is incorrect. Rep. Schrader is a co-sponsor of HJR 81, labeled by its primary sponsor a balanced budget constitutional amendment. That proposed amendment would require a cap on spending (relative to recent revenues adjusted for population growth and inflation) rather than a balanced budget per se. It would take a two-thirds vote to suspend the restriction due to an emergency. Spending caps also unwisely impose an economic straitjacket on the nation.]

The only responsible choice for members of Oregon’s congressional delegation is to reject any proposal that would hamper the ability of our nation to respond to an economic crisis.

Oregon Center for Public PolicyChuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

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    You would like to think that a balanced budget amendment wouldn't be necessary to provide the structure our elected leaders should have the wisdom and self discipline to do on their own. Sadly, this isn't the case.

    BHO says: “We don't need a constitutional amendment to do our jobs,” unfortunately this statement rings just as hollow as the 1,000's of lies he has already told us.

    Spending beyond our means for so many years has reduced the economic output of this country. Deficit spending reduces national savings, which in turn leads to lower investment and reduced net exports. Less savings also restricts the supply of funds available to borrow, which drives up interest rates. In the long run, less investment reduces productive capacity and output, which decreases real wages.

    There was a study done by Greg Mankiw at Harvard that shows that Gross Domestic Product (GDP) in the United States would be three to six percent higher if our government had operated with a balanced budget in recent years. Martin Feldstein, President of National Bureau of Economic Research, has calculated that if the United States had balanced its budget each year since 1980, the national debt today would be only 10 percent of GDP, rather than where it is today. And lastly, a child born today already owes nearly $200,000 in future lifetime taxes just to pay his or her share of the interest on the federal debt. We need a Balanced Budget Amendment to force Congress and the President to stop borrowing from our children and grandchildren...it's immoral and wrong! How many different laws have we passed in the past that congress and the president didn't have the political courage to follow? The budget act of 74 comes to mind and so does the Gramm Rudman Hollings Act in the 80's to name just 2. I agree with Chuck that passing a BBA requiring a balanced budget next year or even in 3 years would be ill advised and would destroy the parts of our economy that George Soros and his economic hitmen haven't already compromised for fun and profit.

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