Outside the Beltway

Wall Street Journal: The House GOP’s Balanced Budget Amendment Is A Bad Idea

One of the GOP's staunchest media allies isn't too impressed with their Balanced Budget Amendment.

Doug Mataconis · Tuesday, July 19, 2011 · 12 comments

In a move that will probably surprise some people, The Wall Street Journal has come out on its Editorial Page against the House GOP’s Balanced Budget Amendment:

The newest versions of the BBA include a strong provision requiring a two-thirds supermajority vote to increase taxes. That said, we doubt the historic 1981 Reagan tax cuts within the Kemp-Roth bill, once subjected to Congress’s revenue-neutrality accountants, could have survived the balanced budget mandate. Even with deficits, the U.S. grew strongly for seven years, adding to GDP as much as the entire West German economy.

Nor is it clear that the amendment could avoid unintended consequences. In the current fight over spending and the debt, the GOP Congressional leadership has worked well to protect the defense budget from a President who constantly cites the need to cut it. But under a mandated need to balance spending, the inevitable horse-trading would likely default to cutting defense while ducking fights on domestic programs.

The Senate and House versions both contain waivers in times of military conflict, but these are fraught with problems. The supermajority requirement for taxes is waived if a “declaration of war” is in effect, or if a majority votes to support spending for a conflict “which causes an imminent and serious military threat” as described in a joint resolution of Congress. Sounds complicated. Would Ronald Reagan’s spending that did so much to end the Cold War have survived these hurdles?

Tea party Republicans, to their credit, want to pass a BBA that would include the supermajority tax limitation. But it has no chance of passing, and absent that rule, political pressure could turn the amendment into a driver for the entitlement state as successive Democratic governments raised taxes, most likely with a European-style value-added tax to balance spending commitments.

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The BBA’s supporters are right that the U.S. is riding a runaway entitlement train. That train, however, is the product of politics, and politics is the way it will have to be stopped. The main political impact of the BBA, however, will be to give “moderate” Senate Democrats up for re-election next year a chance to enhance their prospects by voting “for” spending control they don’t believe in.

We certainly support the House GOP’s plan today to vote to cut spending by $111 billion in fiscal 2012, and to cap spending in future years at a gradually smaller share of the economy. They should make this plan their main political argument, and leave the Constitution out of it.

Fred Bauer makes a similar point, and repeats another that is worth noting, namely that the Constitution already gives the Congress the power to act in a fiscally responsible manner:

The current incarnation of the balanced budget amendment falls into an error about which many on the right have traditionally pilloried the left: it substitutes legalism for virtue and prudence. We can balance the budget tomorrow if we want—by spending no more than we gain in taxes.Conservatives can cut spending if they want, though they seem to find this a challenging prospect when they actually take power. The Constitution already has a mechanism for a balanced budget, if our Congress and president want it. The fact that they have so rarely wanted it, and that the lack of a balanced budget has not always led to an economic or fiscal disaster, might give those sympathetic to prudential conservatism pause. This doubt might be reinforced by noting that the existence of balanced budget amendments in various states has not saved them in any way from fiscal turmoil. Indeed, California, perhaps the paragon of dysfunctional state finances, has operated under a balanced budget amendment for years. Passing constitutional requirements, in the case of California and other states, was a poor substitute for judgement in legislative and executive branches.

If not the Balanced Budget Amendment, then what? The major problem with getting the budget under control in the United States is that any plan that is going to work requires an agreement that covers many years . The Ryan Plan plays out over ten years, the White House put forward a plan that last twelve years, and the Obama/Boehner “Grand Bargain” would be a ten year plan. Of course, there is no such thing as a ten year budget plan. Every Congress passes a new budget, often in resposne to conditions that didn’t exist at the time the plan was agreed to, and Congressmen in office in a given year may not feel obligated to abide by the agreements made by other Congressmen a decade in the past. This is why budget deals that relay on spending cuts in “out years” never seem to work, because there’s no easy way for one Congress to bind another.

This is one reason that a Balanced Budget Amendment is so appealing, because it requires future Congresses to adhere to a budget that stays in balance. As the Journal and Bauer note, though, and as Steven Taylor and myself have noted here at OTB, the structural and policy problems created by turning the budgeting process into a Constitutional issues argue strongly that a BBA is not the way to go. As I noted yesterday, Moody’s suggested looking at the method by which other countries control their deficit spending. Germany recently adopted a Constitutional Amendment that limits annual deficit spending to 0.35%n of GDP, with exceptions that allow higher deficits in times of slow economic growth.  And David Frum makes these observations:

1) Economic growth matters enormously to budget health. Everybody understands that. But what does not get enough attention: the casual inefficiencies we shrug off in good times weigh more heavily on economic performance in bad times. America’s crazy corporate tax code; the costs of litigation abuse; the failure to put a price on highway use; immigration policies that recruit less-skilled labor – these drag down growth and intensify budget problems.
2) The US budget is driven above all by healthcare costs. Healthcare inflation must be checked. Again: everybody understands. At decision time, however, both political parties prefer to protect their clients: Republicans protect healthcare providers; Democrats resist attempts to make Medicare enrollees contribute a larger share of the health costs they generate. We will need in the years ahead to implement both the Democratic-backed idea of comparative effectiveness review and the Republican-preferred concept of shifting toward a model of Medicare premium support.

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3) Instead of a constitutional amendment to balance the budget, we need to internalize the norm that the budget should be balanced in normal economic times. To make that norm effective, we need to restore the institutional structures that used to uphold the norm: a stronger committee system in Congress, a more powerful Office of Management and Budget, budgets going to the floor on closed rules, and so on – a budgeting system that looks more like the system of the 1950s and early 1960s.

4) “Starve the beast” failed. What works is to make people feel the cost of the government they buy. The imposition of a VAT in Canada – with the cost of the tax always kept visible as an addition atop the price – has over the past two decades transformed the attitudes of Canadians toward government. Since the advent of the VAT (known in Canada as a GST, goods and services tax), Canada has swung from having one of the western world’s most expansionary attitudes toward government to having one of the western world’s restrictive.

A VAT Tax is a non-starter in the United States right now and for the foreseeable future, but the four elements that Frum hits on —  economic growth, bringing health care costs under control, budget reform, and tax reform — are all right on the money it seems to me. We’d accomplish more by concentrating on these areas than we would by wasting time and effort to pass a bad Constitutional Amendment.

Update: Stephen Bainbridge proposes another idea, a Taxpayer Bill of Rights.