A Balanced Budget amendment is a great idea, an idea whose time has come. Finally, as it is long past overdue!
A Balanced Budget amendment is an essential symbol of an economy that lives within its means, within the rules of fiscal integrity, fiscal responsibility.
But that is its biggest problem – isn’t it – that it is just a symbol of fiscal integrity and fiscal responsibility?
“OK, what’s the problem? Why is it just a symbol of fiscal integrity and fiscal responsibility? Why doesn’t it FIX the problem?”
The problem – I think we all agree – is an out of control National Debt. And balanced budgets do not fix that problem.
“Whoa, really, why not?”
The Balanced Budget amendment solves a problem – deficits – that is not the real problem – which is the Debt. If this year’s deficit (let’s say a huge deficit, $1,000,000,000,000, a trillion dollars) were matched by next year’s surplus (a trillion dollars), there would be no addition to the Debt and no addition to the problem – which is the Debt. The Balanced Budget amendment ignores the Debt altogether and fails utterly to get at the real problem, the Debt.
“OK, I get that. So, what do we do about the Debt?’
In order to reduce the Debt, by even a penny, we need to have Surpluses, not just balanced budgets, and the Balanced Budget amendment does not even mention surpluses. Indeed, there is a Biblical story about how an economy with ups and downs manages to avoid long-term debt. It is the story of Joseph and the Pharaoh's Dream, Genesis 41. We know there will be good times and bad times, times of “plenty” and times of “famine.” It is lunacy to consume all we harvest in good times; we need to hold enough of it back to survive the bad times. In terms of taxation, it means that we should run surpluses in good times in order to balance the inevitable deficits of bad times. And a surplus means greater tax revenues than government expenses. A surplus is what President George W Bush dismissed as misguided policy ("The surplus is the people's money, and we ought to trust them with their own money" justified his irresponsible tax cuts).
By the way, this means we must tax enough to run surpluses. Which is the opposite of what proponents of the Balanced Budget intend (which is only to cut spending until we have a balanced budget).
The Debt is the problem and surpluses (yes, higher taxes!) are the only solution, not a balanced budget. As long as we refuse to collect more taxes – from the top 1% or 2%, from capital gains taxed as regular income, from profitable corporations, from real property – just so long we can expect our National Debt to grow until it strangles us to death.
For all that, there is also an unintended consequence to a Balanced Budget amendment: Congress would suffer cardiac arrest, it would achieve permanent gridlock. Republicans would refuse to raise taxes and Democrats would refuse to defund social services. It would be a Libertarians’ wet dream!