For a Real Shocker, Read Proposed Balanced Budget Amendment

ROBERT EISNER is William R. Kenan professor emeritus of economics at Northwestern University in Evanston, Ill. He is the author of "The Misunderstood Economy: What Counts and How to Count It."

Everybody tells the pollster he is for a balanced budget--until he is told how it might be balanced and whom that will hurt.

But as the Senate debates the proposed "balanced budget" constitutional amendment, how many have looked at its actual terms? And how many have thought through what they imply?

Those who do will be in for some shockers. Here is what the amendment passed by the House says and the questions it raises:

Section 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a roll-call vote.

Suppose by some miracle or sleight of hand we start a fiscal year on Oct. 1 with a budget proclaimed to be in balance. Suppose as the year wears on that the economy slips into recession. Each percentage point increase in unemployment will automatically increase the deficit by more than $50 billion as receipts--largely individual and corporate income taxes--decline and outlays for unemployment benefits rise. What then?

Section 2. The limit on the debt of the United States held by the public (currently about $3.5 trillion) shall not be increased, unless three-fifths of the whole number of each House shall provide by law for such an increase by a roll-call vote.

This might seem to be redundant to Section 1, because in principle any deficit would be financed by increasing the debt. But in practice, some items other than deficit spending contribute to the debt. For example, the Treasury borrows to finance student loans--borrowing that the amendment would make unconstitutional even if the budget were balanced! Presumably the framers of the amendment never thought of this. One wonders what else they may not have considered.

Section 3. Prior to each fiscal year, the President shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which total outlays do not exceed total receipts.

This is a real laugher. All the President has to do is overestimate receipts and underestimate outlays.

Section 4. No bill to increase revenue shall become law unless approved by a majority of the whole number of each House by a roll-call vote.

This is one of the two provisions not requiring a three-fifths vote for an exception--an omission that enrages many conservatives. The section permits relatively easy constitutional balancing of the budget by raising taxes.

Section 5. The Congress may waive the provisions of this article for any year in which a declaration of war is in effect . . . (or) the United States is engaged in military conflict which causes an imminent and serious threat to national security and is so declared by a joint resolution, adopted by a majority of the whole number of each House, which becomes law.

Was the Vietnam War really a threat to national security? Would it have qualified?

Note, by the way, that there is no provision for natural disasters--earthquakes, floods, hurricanes. But most important, no provision is made for downturns in the economy. These cause large increases in the deficit, but we have prided ourselves since the misery of the Great Depression in the existence of "automatic stabilizers." As the economy turns down, the decline in our purchasing power is mitigated by the reduction in our tax payments, which are tied to income, and the cushion of unemployment benefits. The amendment would eliminate these stabilizers. Worse, it would enable a minority of either house of Congress to force us, perversely, to raise taxes and cut unemployment benefits and other government outlays when the economy turns down!

Section 6. The Congress shall enforce and implement this article by appropriate legislation, which may rely on estimates of outlays and receipts.

This is a real puzzler. What if the estimates are wrong? What if they are purposely wrong? Suppose the budget appears to be headed for a $100 billion deficit. Does Congress legislate a cut in tax rates and claim that at lower rates, it can estimate more in tax revenues, thus balancing the budget?

Or does it play it honestly? What then would it do? Stop paying unemployment benefits? Delay Social Security checks? Send our armed forces home or lay off the Border Patrol? Default on interest payments on the existing debt? Or raise taxes? Any of these measures might plunge the economy so much deeper into recession that the deficit would actually increase, as Herbert Hoover discovered when he tried to balance the budget in the early 1930s.

Section 7. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except those for repayment of debt principal.

What options, then.

This sets up some neat loopholes. We could swell receipts by selling off the government and its assets. We could cut outlays by setting up quasi-government entities to make expenditures, which would be financed by their own off-the-books borrowing and supported by government loan guarantees.

Perhaps the single most pernicious element of the amendment is its failure to distinguish capital outlays from outlays to meet current expenditures. The many states with balanced budget provisions in their constitutions generally exclude capital expenditures and permit borrowing to finance them. Business, of course, borrows all the time to finance its expansion, and individuals borrow to buy houses or send their kids to college. This amendment would mean that the federal government alone would be restricted from borrowing to meet the needs of a growing economy and invest in our future.

Section 8. This article shall take effect beginning with the fiscal year 2002 or with the second fiscal year after its ratification, whichever is later.

That's probably the best provision both for the public and the Congress. It would delay our pain. And most of the current Congress may not be around by then anyway.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World