Balanced Budget Amendment Is Not The Holy Grail

By George Noga


A federal balanced budget amendment (“BBA”) is favored by 74% of Americans; they believe it will, once and for all time, force fiscal discipline on the government. They are putting way too many eggs in the BBA basket. Watch out what you wish for. If there is a BBA, all those eggs will end up scrambled into a rather unpalatable omelet.

Anyone with an analytical bent easily can find myriad paths through, over, under and around a BBA. In short, it would be eviscerated and not worth the paper it was written on – and that is assuming it can pass with two-thirds majorities in Congress and be ratified by 38 states. Following is but a partial list of the ways a BBA could be disemboweled.

“Watch out what you wish for. Government will find
myriad paths through, over, under and around a BBA”

1. Many things at first blush seem simple but are, in fact, complicated. How would a BBA define a budget; what does balanced mean; what is a tax and a penalty? There is doubt about its constitutionality; it would be the only provision of the constitution that could be waived. If you believe these questions are esoteric, think again and keep reading.

2. What are allowable BBA exceptions; surely there will be provisions that deal with military actions as well as natural and man-made disasters. There will be escape hatches, perhaps big enough to drive a truck through. Whatever exceptions are carved out for such things, expect many more of them in the future.

3. How does the BBA deal with economic cycles – both boom and bust? Revenues can both skyrocket and plunge from year to year. Are we to drastically cut spending in a recession? If not, there surely will be more “recessions”. How is recession defined? How is a boom defined and what do we do with excess government receipts? If the BBA is to be applied over an entire economic cycle, this opens to door to great mischief.

4. There are sure to be lawsuits that tie up the BBA for decades. Ultimately federal judges will wind up with enormous power to interpret and to change. Consider for a moment how the federal bench has dealt with school desegregation and busing; they still are entangling themselves over a half century after the initial ruling.

5.  How do we distinguish capital expenditures from ordinary expenses? Surely, the argument will go, a BBA was not meant to include infrastructure spending that has a life of 50 years. If capital is treated differently, more expenditures will be classified as capital.

6. How do we address off-budget spending such as by Fannie, Freddie, USPS and the Federal Reserve? Who will prevent government from creating scores of new off-budget entities? Do we exempt interest on the debt; what happens when interest rates skyrocket?

7. Watch out for so-called special taxing districts; these are favorites of local government with nearly 50,000 nationwide. If they are not under the BBA ambit, they will mushroom.

8. How about entitlements? Are Social Security, Medicare, Medicaid, civilian/military pensions to be part of the regular budget? Are they no longer to be considered off budget entitlements?

9. User fees will sharply increase and the government will be creative in imposing new ones. Be prepared to pay handsomely for everything you get from Washington – how about $50 to file a paper income tax return; $100 to get into a national park?

10. Loan guarantees will become de rigueur as a way to fund programs off budget. After all, a loan guarantee is not an expenditure – is it?

11. Instead of direct taxation, costly new regulations will flourish. Rather than spend tax money, Congress will bypass taxes altogether and accomplish the same end result through regulation. Hello bureaucracy gone wild.

12. The tax code can be used for far more than raising taxes subject to a BBA. It can be larded with tax expenditures, incentives, penalties and all sorts of tomfoolery.

13. Don’t forget mandates. If the ObamaCare mandate survives judicial scrutiny, what is to stop government from substituting mandates for taxes? An offshoot is the feds mandating that states, counties and/or cities spend money not subject to BBA.

14. A budget can be balanced with tax increases. This would comply with a BBA but would not exactly be what its proponents intended.

This list is not exhaustive of the possibilities for scamming and co-opting a BBA. The possibilities are endless and constrained only by the most imaginative politician. When it comes to creative accounting, no one beats veteran Washington pols. I’ll bet if readers spend 15 minutes they can come up with at least one way to evade a BBA not on the above list.

Two main questions linger. First, is a BBA better than nothing? The first reaction is to argue that a BBA should anticipate and prevent all the possible abuses noted supra. This argument flies in the face of the need to keep a BBA simple and general. Constitutional amendments are not detailed laws but general guiding principles.

Many believe a BBA is worth trying only because we have tried everything else. However, a BBA easily could backfire if it passes, we declare victory and resume going about our private business. I would bet that, sooner rather than later, the BBA would have more holes than Swiss cheese and we would be back to square one.

Reluctantly, I have come to the view that a BBA is not the answer because: (1) we would expend lots of energy (perhaps for naught) on a BBA better spent elsewhere; (2) it will not work for all the reasons noted in this paper; (3) it would beguile us into falsely believing the problem is solved once and for all; (4) many of us would declare victory and go home while the other side would keep fighting; and (5) you can’t take the politics out of politics.

“The only solution is to keep winning elections
year after year after year without end.”

The second question is, if not a BBA, then what? We cannot rely on laws or artifices, however tightly written, to control government. I fear the only long-term solution is for people of good will to remain engaged permanently. Yet, this is contradictory to human nature. Once a problem appears solved, even momentarily, we tend to declare victory and go back about our private business. But big government and its acolytes never stop and neither must we.

The only solution is to keep winning elections – year after year after year without end. As seductive as it may seem, a balanced budget amendment is fool’s gold; it is not the Holy Grail.

Note: Some of the ideas used herein are from Peter H. Shuck, co-author of “Understanding America” and his op-ed in The Wall Street Journal.

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