Wednesday, June 17, 2015

Republicans jump off cliff with a Balanced Budget Amendment, taking us all with them...

This post if for my conservative friend in Milwaukee who's hotly following the possibility of a right wing sponsored constitutional convention pushing a balanced budget amendment, one of three items.

I told him how that would be a disaster, but he retorted "JOHN DON'T GIVE ME TALKING POINTS I don't want to hear talking points." Why are conservatives so obsessed with typing capital letters? So I researched the chaos that would be ensue by this simpleton solution to a dramatically complex process of government. Did I ever tell you he hates government?

From the Center on Budget and Policy Priorities, a list of outrageously nasty consequences that surprise, locks in benefits to the wealthy while doing away with programs for the poor and middle class:
A Constitutional Balanced Budget Amendment Threatens Great Economic Damage: The amendment would force policymakers to cut spending, raise taxes, or both just when the economy is weak or already in recession -- the exact opposite of what good economic policy would advise.

Rather than allowing the "automatic stabilizers" of lower tax collections and higher unemployment and other benefits to cushion a weak economy, the amendment would force policymakers to cut spending, raise taxes, or both. That would launch a vicious spiral of bad economic and fiscal policy: a weak economy would lead to higher deficits, which would force policymakers to cut spending or raise taxes more, which would weaken the economy further. The director of the Congressional Budget Office and one of the nation's most respected experts on fiscal policy -- explained: "[I]f it worked [a constitutional balanced budget amendment] would undermine the stabilizing role of the federal government."

The fact that states must balance their budgets every year -- no matter how the economy is performing - makes it even more important that the federal government not also face this requirement … requirement that federal spending in any year must be offset by revenues collected in that same year.

Social Security could not draw down its reserves from previous years to pay benefits in a later year but, instead, could be forced to cut benefits even if it had ample balances in its trust funds, as it does today … it would essentially be unconstitutional for Social Security to draw down these savings to pay promised benefits. Instead, benefits could have to be cut, because all spending would have to be covered by tax revenues collected during that same year. Here, too, the balanced budget amendment would make it unconstitutional for the FDIC and the Pension Benefit Guarantee Corporation to use their assets to pay deposit or pension insurance since doing so generally would constitute "deficit spending." 

It would undercut all U.S. government insurance and loan guarantees. Those range from the "full faith" backing by the U.S. government to pay interest on Treasury securities to deposit insurance, pension insurance, FHA loans, small business loans, flood insurance, and the nuclear power industry's liability insurance under the Price-Anderson Act.

Nor could the Federal Deposit Insurance Corporation or the Pension Benefit Guaranty Corporation respond quickly to bank or pension fund failures by using their assets to pay deposit or pension insurance, unless they could do so without causing the budget to slip out of balance.

While states must balance their operating budgets, they can -- and do -- borrow for capital projects. Families often borrow, as well, such as when they take out mortgages to buy a home or loans to send a child to college. The proposed constitutional amendment would bar the federal government from making worthy investments in the same way.

And it would serve to protect the more than $1 trillion a year in "tax expenditures" -- subsidies provided to individuals and corporations through the tax code. Tax expenditures predominantly help well-to-do Americans, who tend to get most of their federal subsidies through the tax code, as opposed to low- and moderate-income Americans, who get most of theirs on the spending side of the budget.

The total federal budget -- including capital investments -- would have to be balanced every year; no borrowing to finance infrastructure or other investments to boost future economic growth would be allowed. And if the federal government ran a surplus one year, it could not draw it down the next year to help balance the budget.
I know this is a little long, but bear with me, it's a big deal:
If a parent has low or moderate income, she may be able to get a federal subsidy through a spending program to help cover her child care costs. If a parent is higher on the income scale, she still receives a government subsidy that reduces her child care costs, but it is a tax credit. It is difficult to justify making the tax-code subsidy sacrosanct and the program subsidy a deficit-reduction target merely because one is delivered through a "spending" program and the other is delivered through the tax code.

Bar federal spending from exceeding 18 percent of GDP in any year. To hit that level would require draconian cuts. Medicare would be converted to a voucher system under which, the CBO said, beneficiaries' out-of-pocket health-care costs would nearly triple by 2030 … federal Medicaid funding in 2030 would be 49 percent lower.

Another way to look at an 18 percent of GDP limit -- or alternative proposals that would cap federal spending at 20 percent or 20.6 percent of GDP -- is to examine federal spending under President Ronald Reagan. Under Reagan, who secured deep domestic budget cuts at the start of his tenure, federal expenditures averaged 22 percent of GDP. Moreover, that spending level occurred at a time when no members of the baby boom generation had yet retired. It also occurred at a time when total health-care spending in the United States (including the private sector) was one-third lower as a share of GDP than it is today. This also was before policymakers created a new category of homeland security spending in response to the September 11 terrorist attacks. And it predated the wars in Iraq and Afghanistan, which have led to increases in veterans' health-care costs that will endure for decades.
Finally:
Questions Abound About Who Would Enforce the Balanced Budget Requirement -- And How They Would Do It: Suppose the budget is out of balance. What happens? Would the President have the unilateral power to impose balance? Suppose, for example, that a reconciliation bill designed to balance the budget is defeated at the end of the congressional session. Can the President unilaterally declare that it is law nonetheless? Can he instead make across-the-board cuts in all spending, including Social Security, Medicare, and defense, without congressional action? Can he select which programs to cut unilaterally? Can he impose across-the-board, or selected, increases in tax rates? How about across-the-board or selected reductions in tax expenditures?

What about the Supreme Court? If the budget is not balanced, can the Court declare a defeated reconciliation bill to be law? Can it override a presidential veto of a reconciliation bill? If it cannot enact a defeated or vetoed law, can it declare that a bill allowing a deficit as having been enacted if it received a majority vote but not a three-fifths vote? Alternatively, can it invalidate appropriation bills, in reverse chronological order? If that seems arbitrary and unworkable, can it order across-the-board cuts in all appropriations, or entitlement programs, or tax expenditures? Can it impose across-the-board surtaxes? Can it hold Congress or the President in contempt and possibly jail them if they ultimately do not act?

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