Balanced budget amendment

The Balanced Budget Amendment is a proposed amendment to the United States Constitution which would require a balance in the projected revenues and expenditures of the United States government. Most such proposals contain a supermajority exception allowed for times of war or national emergency.

Deficit spending versus balancing the budget

Unlike the constitutions of most states, the United States Constitution does not actually require the United States Congress to pass a "balanced" budget, one in which the projected income to the government through taxes, fees, fines, and other revenues equals the amount proposed to be spent. This has led to "deficit spending" and the creation of a national debt. Except for a short period during the presidency of Andrew Jackson, since its inception the United States Government has always been in debt. At one time, President Bill Clinton mananged to create a balanced budget for the national government.

Criticism

The practice of deficit spending has many critics. Their argument against this practice is usually twofold – the first point being that debt requires large portions of governmental revenues going not to any program or need but merely to pay interest to investors, and the second being that the U.S. Government's ability to incur essentially limitless debt leads invariably to the expansion of government into areas which they believe the Founders never intended it to enter, such as the realm of social policy. They also note that many taxpayers themselves live off of what their income is, or even considerably less, and that government should do likewise.

Even those taxpayers who incur debt, the critics note, are limited by considerations of creditworthiness and repayment, which hardly affect the U.S. Government because the results of its going into default are essentially regarded to be unthinkable, and it is therefore considered an event that will not happen, because it would be politically impossible to permit it.

Keynesians and deficit spending

Supporters of the current system state that the federal government, unlike state governments, needs the ability to control the size of the money supply. Followers of Keynesian economics believe that the government should deliberately engage in deficit spending during times of recession as a method of economic stimulation. They also state that the federal government, unlike the states, has the sole power and authority to wage war, and must defend the country even if this means going further into debt, and perhaps under circumstances which could not be contemplated by any supermajority bypass provisions which are in most "BBA" proposals.

Many also state that as a percentage of gross national product both the current levels of deficit spending and overall national debt are acceptable, and even could be considered low in historic terms. At one time, those largely unworried by deficits also said that the deficit was largely irrelevant because it was "the debt we owe ourselves," meaning that it was largely owed to U.S.-based investors. Recent studies have shown that this is increasingly not the case; many holders of U.S. bonds are Japanese, European, and even Chinese.

Support over the years

As a political issue, the deficit, national debt, and the proposed Balanced Budget Amendment have ebbed and flowed in levels of discussion and the proposed amendment has varied greatly in level of support. The modern discussion of the issue seems to have been started by the Republican Party in response to the "guns and butter" policies of President Lyndon B. Johnson, who simultaneously announced his desires for "Great Society" social programs while prosecuting the Vietnam War. Johnson also pushed for Congressional enactment of a surtax as well as other tax increases which allowed him to leave office in 1969 with a balanced budget (plus a small surplus) on the books. This was the last time the United States would see a balanced budget for nearly three decades.

Nixon and Carter

Deficit spending resumed under Richard Nixon, who had become president by the time that the 1969 surplus was known. Nixon's advisors chose to fight inflation rather than to maintain a balanced budget. Nixon was famously quoted as saying, "We are all Keynesians now," with regard to the budget deficit that his administration began to accumulate during years of mild recession. (He also imposed the first peacetime wage and price controls, mandatory petroleum allotments, and many other features of a planned economy).

With the distractions of the Watergate scandal and the budget deficit relatively small, however, most criticisms were sidelined until the administration of Jimmy Carter. During Carter's presidency, the term "stagflation" enjoyed widespread use as the economy stagnated even among increased inflation rates. This economic situation had been previously unheard of in the United States where increasing prices and wages had generally been seen during times of economic growth. Republicans began to make much mention of "Democratic deficits" and proposed the Balanced Budget Amendment as a cure. This was politically costless for them as long as they controlled neither house of Congress nor the Presidency, as they knew that it would not be enacted.

During this time period, even many liberal Democrats began to call for a Balanced Budget Amendment, including Governor Jerry Brown of California, who ran for president against Carter in 1980, and then-Congressman Paul Simon, who, upon his election to the U.S. Senate, would write the version of the amendment that came closest to passing.

Reagan versus Congress

However, when the 1980 U.S. Presidential election gave Republicans both a new President in the person of Ronald Reagan and control of the United States Senate, passage of the amendment started to seem more possible (even though passage of a constitutional amendment requires a two-thirds majority in both houses of Congress). Deficit spending soared under a composite of Republican-promised tax cuts and Democratic-favored new programs. A program agreed to by Administration and Congressional leaders which was supposed to entail two dollars of spending cuts for every dollar of tax increases was an abysmal failure, and deficits soared further. It became apparent that Congress had no intention of passing the Balanced Budget Amendment.

The amendment's backers, far from despairing, said that it was needed more than ever. They began a plan to make an "end run" around Congress, for the U.S. Constitution also allows two-thirds of state legislatures to petition for a new constitutional convention to be called for the purpose of writing proposed amendments to the Constitution, a procedure which has never happened at the federal level since the original constitutional convention of 1787. Many people were appalled at the concept; some constitutional scholars suggested that such a body could not be limited to its obstensible purpose and could largely rewrite the Constitution, perhaps removing or reducing the Bill of Rights, a fear that backers described as being totally groundless, since any proposed changes would still have to be approved by three quarters of the states, which would presumably doom any attempt to end basic constitutional freedoms.

Detractors also noted that there was no mechanism in place by which to select delegates to any such convention, meaning that the states might chose to select them in a way which tended to subvert democracy. Backers also produced their own constitutional scholars stating that limiting such a convention was perfectly constitutional, that it could be limited to whatever purpose the states had called it for, and that states would be free to select the delegates to represent them, as was the case in 1787.

Gramm-Rudman-Hollings Act

Perhaps motivated by the number of state legislatures calling for such a convention approaching the required two-thirds, and recognizing its inability to make sufficient cuts on its own initiative to balance the budget, Congress responded in 1985 with the Gramm-Rudman-Hollings Act, named for its Senate sponsors, which called for automatic cuts in discretionary spending when certain deficit-reduction targets were not met. This act soon became a convenient target for opponents of all stripes, who blamed it for government failing to meet perceived needs, for not abolishing the defecit, and anything else that might be wrong with government. When it began to affect popular programs, and was partially overturned in the courts, it was first amended to postpone the strength of its effects until later years, and then repealed in its entirety.

"Read my lips…"

President George H. W. Bush, in part to help ensure Congressional support for the Gulf War, agreed to turn back on a campaign promise ("Read my lips: no new taxes!") and agree to a tax increase, again in return for a promise of spending cuts which proved to be phantom, possibly in part because he saw disaffection from his conservative base due to the looming deficit to be more damaging than violation of his tax promise. If so, this proved to be a miscalculation.

Deficit spending continued, but was no longer much of an issue until the maverick presidential bid of H. Ross Perot during the 1992 presidential election. Perot made the deficit, and his plans to eliminate it, the major issue of his campaign, along with his protectionist plans to reduce and then eliminate the trade deficit. Many supporters of the Balanced Budget Amendment flocked to the Perot camp; most were stunned when he suspended his campaign in August of 1992 and were thrilled when he re-entered the race in October just in time for the presidential debates, where he again pounded the candidates of the major parties, President George H.W. Bush and Governor Bill Clinton of Arkansas, on the deficit issue. However, after Perot failed to carry a single state, he temporarily faded from the scene somewhat and when he made appearances, focused more on the trade deficit issue.

Clinton and a budget surplus

The Republican takeover of Congress in 1994 led to a push for a balanced budget, President Clinton and congress reduced the deficit. Major economic growth and spending controls such as welfare reform, favored by both the President and republican congress allowed for a balanced budget (when the Social Security surplus was counted as revenue) by early in Clinton's second term - considerably earlier than what Clinton's own projections for this had indicated and, afterwards, a surplus which actually allowed the retirement of some government debt.

Momentarily, the deficit issue faded from view. Despite the nominal surplus, the national debt grew each year of the Clinton presidency since the surplus is not applied against spending in this calculation. [1]

Out of office, former House Speaker Newt Gingrich called for continued payments toward the debt with a view to paying it off entirely. Perot's less effective 1996 presidential bid was in part evidence of the declining significance of the deficit, and hence the Balanced Budget Amendment, as an issue. In his final State of the Union President Clinton said the USA should continue to balance its books and pay off the debt entirely, however the technology downturn which began impacting the economy in mid-2000 combined with the cost to the country from the 9/11 attack as well as increased military spending required by the War onTerror have seen the debt grow to the largest in US history.

Tax cuts implemented early in the Bush Presidency have spurred a healthy economic expansion which is helping to pay down the deficit.

George W. Bush

However, events seemed to conspire against long-term budget surplus and the retirement of the national debt. Once President George W. Bush entered office, he began a program of tax cuts reminiscent of Reagan's. Following the September 11, 2001 attacks, suddenly restraining governmental spending seemed to be a low priority. As deficits are now the largest in U.S. history in nominal dollars (although still below those of the early Reagan years in constant ones), fiscal conservatives are appalled. However, the issue of deficit reduction or a Balanced Budget Amendment seems to have little traction as a U.S. political issue as of 2004. It will most likely take another polarizing figure such as Perot was in the 1990s to alter this situation to any significant degree, because neither of the major parties seemed interested in making it an important issue in the 2004 Presidential campaign; on surveys of voters asking what issues were the most important to them, budget deficits were scarcely mentioned at all and the issue seems to be fading further for the time being, and along with it any real support for the Balanced Budget Amendment. Given the seemingly cyclical nature of this issue, how long this situation will last is a matter of speculation.

See also

• Deficit spending
• Balanced Budget Veto Amendment