Talk of Balanced Budget Raises Eyebrows

On June 6th, 103 Republican members of the U.S. House of Representatives lead by Majority Whip Kevin McCarthy (R-CA) sent a letter to Speaker of the House John Boehner (R-OH) and House Majority Leader Eric Cantor (R-VA) calling for a “Cut, Cap, and Balance” strategy for dealing with the nation's large federal debt. The letter comes amidst pressure to raise the debt ceiling as we approach a possible government default in August. While raising the debt ceiling is nothing new – and indeed has been done ten times in the past decade – this time around many Republicans, and some Democrats, insist that they will agree to raise the debt ceiling only if it is accompanied by substantial cuts in spending.

Many bills reflecting this strategy have appeared lately, including a bill introduced in the Senate in March (S.J.Res.10), cosponsored by all 47 Republican Senators,.calling for a Balanced Budget Amendment to the U.S. Constitution. In the House, a similar bill “Proposing a balanced budget amendment to the Constitution of the United States” (H.J.Res. 1) introduced by Rep. Robert Goodlatte (R-VA) was marked up by the House Judiciary Committee on June 2nd and is expected to pass the House next week.

If passed. H.J.Res. 1 would require a three-fifths majority in Congress to raise taxes, would cap spending at 18% of Gross Domestic Product (GDP) – reduced from 20% by an amendment by Rep. Louis Gohmert (R-TX) – and, perhaps most significantly, include a constitutional amendment that would force the federal government to spend only what revenues are collected in a given year (excluding payment of debt), unless three-fifths of Congress votes otherwise.

What most of these recent proposals have in common is support for a Balanced Budget Amendment (BBA), to the U.S. Constitution. Enthusiasm for a BBA is not new, and has made an appearance several times in the past four decades, most recently in 1995 when House Republicans included it in their “Contract with America.” Yet these initiatives have been consistently defeated and in its most recent incarnation has been dismissed as “yet another old and discredited idea” by House Judiciary Committee Ranking Member Rep.John Conyers (D-IL) when the bill came before the committee last week. Rep. Conyers further criticized it for privatizing Medicare and raising the age for Social Security and Medicare benefits. At the very least, the bill would threaten Social Security and other entitlement programs by prohibiting them from dipping into surplus revenues from other years in lean times, leading to potential cuts in benefits to recipients.

The main problem with a Balanced Budget Amendment, as explained by the Center on Budget and Policy Priorities (CBPP), is that in tough times when revenues are low due to lower incomes, Congress would either have to raise taxes to maintain spending levels, or cut spending, further weakening the economy.

Economic Policy Institute (EPI) budget analyst Andrew Fieldhouse voiced similar concerns, that the proposed BBA would shrink “government to implausibly low levels” and “also irrationally constrain fiscal policy during recessions.”

H.J. Res. 1 will likely pass the House next week and a recent Sachs/Mason-Dixon poll found 65% of those polled to be in favor of a Budget Balancing Amendment compared to 27% opposing it. Yet it is not expected to make it through the Senate with the required 67 votes, let alone gain the required approval of 38 states needed to amend the Constitution. This suggests that this loud debate is, for the most part, just one more act in the feisty political theater taking the Washington stage this season.