Tuesday, July 19, 2011

The Balanced Budget Amendment? It's done wonders for California...

Lawrence O'Donnell interviewed Robert Greenstein from the Center on Budget and Policy Priorities about another bad budget idea from the Republican Party:

At the Frum Forum, this analysis of the balanced budget amendment. Again, this is just another horrific economic idea from our supposed guardians of fiscal responsibility.
The “balanced budget amendment” (BBA) currently endorsed by many Congressional Republicans not only requires that the budget be balanced but also stipulates, among other things, that federal spending cannot go above 18% of GDP without a 2/3 majority vote in favor, that taxes cannot be increased without a 2/3 majority vote in favor, and that a vote of 3/5 of both branches of Congress will be required to raise the debt ceiling. A 2/3 vote can also allow the budget not to be balanced. War can allow many of these majority requirements to be waived—with the notable exception of taxes, which would still require a 2/3 majority to be increased.*

An initial practical point: changing the tax system, the BBA would very likely make tax reform harder, not easier. Most forms of tax reform would require that taxes somewhere be raised (through the closing of various loopholes, say)… requirement for a 2/3 majority … the BBA seems to put in place an utterly unconservative dynamic: it makes it easier to increase spending than it is to increase taxes.

Because GDP is a notoriously unmoored number, the requirement that spending cannot exceed 18% of GDP is built on sand. In a year in which spending is 18% of GDP and the GDP number is later revised downward, part of the budget based on that year’s GDP might be deemed unconstitutional. Which part? This requirement could plant a bacterial trace of chaos in the budgetary system of the United States, one that could infect the whole of the federal budget.

Moreover, 18% is an entirely arbitrary number. According to the Office of Management and Budget, 1966, before Medicare really came into effect, was the last year where federal spending was below 18% of GDP. It is unclear why this number should be set in stone.

Almost every presidential administration since 1900 would have had budgets that would have required a Constitutional override of a 2/3 vote except Harding and Coolidge … though Coolidge’s presidency was also followed by the worst economic collapse in the twentieth century. The only Republican president in the postwar era whose policies led to at least one year with a balanced budget was Eisenhower. With the exception of 2001 (which was a partial carry over from Clinton-era budgets), every year of Nixon, Ford, Reagan, Bush I, and Bush II would run afoul of the BBA.

Federal debt has pretty much inexorably increased from 1900 to 2000, but the United States did not become poorer or radically less fiscally sound over this period. Moreover, the embrace of the principles of the BBA would seem to entail the rejection of the policies of every Republican and Democratic administration in the modern era … A total rejection of historical practical standards sounds less like moderating conservatism and more like an insistent radicalism.

The normalization of overrides could easily make public finances less sound and increase governmental inefficiency, as 2/3 of all members would have to be “persuaded” by subsidies, tax breaks, and pet programs.

It substitutes legalism for virtue and prudence. We can balance the budget tomorrow if we want—by spending no more than we gain in taxes. The existence of balanced budget amendments in various states has not saved them in any way from fiscal turmoil. Indeed, California, perhaps the paragon of dysfunctional state finances, has operated under a balanced budget amendment for years. Passing constitutional requirements, in the case of California and other states, was a poor substitute for judgment in legislative and executive branches.

The fact is that some debts are worth incurring, while others are not. Sometimes deficit spending makes perfect sense; at others, it’s equivalent to a drug addict borrowing for a good time. Sometimes, some taxes will have to be raised; sometimes, some taxes will have to be lowered. Personal judgment and principled deliberation can help us realize those times—a set of paragraphs plugged into the Constitution will not.

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