The Argument for a Balanced Budget Amendment: a Summary

 

Ever since the end of World War II the strength of the United States has guaranteed world order and stability. As Americans we are especially fortunate to live in such a strong, free and prosperous nation.  But our future wellbeing depends on the soundness of our economy and the integrity of our financial system.   This includes being able to pay our country’s debts in any circumstances.
The public debt (on which we pay interest) is now 74% of GDP, the highest it has been since the end of WWII.  The Congressional Budget Office, our most objective and nonpartisan source for fiscal and budget information, predicts that the debt will continue to rise indefinitely, presumably until we have another financial crisis, which is likely to be much worse than the Great Recession of 2008-09.
Capture0It is almost impossible for Congress to address our debt problem effectively.  Democrats want to spend more money while Republicans want to avoid raising taxes.  The wishes of both can be satisfied only by increasing deficit spending and therefore borrowing more money.  Right now this practice is pain free because interest rates are so low.
But this situation will not last forever and is, in fact, already starting to change.  The Federal Reserve raised short term interest rates by .25% in December 2015 which raises interest payments on the $13 trillion public debt by $33 billion per year.  Warding off inflation will require many more such rate increases in the future.
The only way to force Congress to act on this problem is with a Balanced Budget Amendment to the U.S. Constitution.  27 States (out of a required 34) have called for a Constitutional Convention to propose a BBA.  As more states are added to the list, Congress may decide to propose a BBA on its own.
I have discussed previously how to make a BBA both effective and flexible enough to handle emergencies.  It is likely that the proponents of a BBA would draft it carefully because it would have to be ratified by 38 states in order to take effect.
This is the best argument I can make for a BBA.  I will now move on to other topics!

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The Wider Value of a Balanced Budget Amendment

 

Several recent posts, especially here and here, have advocated for a BBA to the U.S. Constitution and pointed out that 27 states (out of a required 34) have now called for a Constitutional Convention to propose a BBA. I pay careful attention to the responses I receive to my posts.  Several folks have said that while they support a balanced budget, there are other higher priorities for them, such as ending wasteful and inefficient programs or focusing more on the needs of people rather than being overly worried about budgetary matters.
CaptureI contend that a carefully formulated BBA would do far more than just solve our debt problem, as important as this is.  For example:

  • An essential component of a BBA would require the President to submit a balanced budget to Congress each year. So it starts out by forcing the Administration to set priorities. If a new program is advocated, fine, but then it has to be offset by cutting back on existing programs, or else raising taxes. Congress need not accept the President’s priorities but then it has to set its own.
  • It would become a huge priority for both Congress and the President to carefully examine all programs to ferret out waste and inefficiency. There would be an incentive for programs to be shifted to the states, with the flexibility to make them more effective, in return for cost savings.
  • The best way to raise stagnant wages for the middle class is to make the economy grow faster. The best way to grow the economy faster is broad-based tax reform, with lower tax rates across the board, paid for by closing loopholes and shrinking deductions. But faster economic growth will also bring in more tax revenue, therefore making it easier to shrink the deficit and balance the budget.

Conclusion: A Balanced Budget Amendment to the U.S. Constitution would have many benefits, beyond “mere” fiscal responsibility. Next question: how should a BBA be formulated to insure that it is both effective and flexible enough to allow response to emergencies?

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Good Riddance to 2015

 

This has been a bad year for the U.S. and the Western World. Peace, prosperity and progress have suffered major setbacks.
CaptureHere are the three worst disasters of 2015:

  • The European refugee crisis. Chaos in the Middle East, especially in Syria, Iraq and Libya, has caused over a million refugees to flee their homelands and overrun Europe. This is not only a humanitarian crisis but also a severe strain on the resources of our friends and allies in the European Union, already weakened by huge debt resulting from the financial crisis.
  • The rise of Donald Trump. He appeals to the worst instincts of many Republican voters: nativist, protectionist and isolationist. Granted he has created more interest in the 2016 presidential campaign but at what cost to future economic and social progress? He is too crude, prejudiced and unprepared to possibly be elected president. His nomination by the Republican Party will lead to electoral disaster and therefore continued economic stagnation and an even faster increase in debt.
  • The collapse of fiscal common sense. The Republican Congress started out 2015 by adopting a ten year plan to achieve a balanced budget by 2025. But this plan fell by the wayside as a 2016 budget was hammered out, leading to an increase in the projected 2016 deficit alone of $158 billion. Such fiscal irresponsibility has created new interest in holding a Constitutional Convention to propose a Balanced Budget Amendment.  Of the 34 states needed to force Congress to call a Con-Con for a BBA, 27 states have already formally applied.

Always the optimist, I have ended on a hopeful note. The world depends on the U.S. for leadership and it isn’t too late for us to get back on track.  But it won’t be easy!

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Passing a Balanced Budget Amendment to the Constitution

 

My last three posts have discussed the long term damage that will be caused by excessive spending in the recently passed 2016 federal budget and what should be done about it.
CaptureThere is at least one way to force Congress to act in a responsible manner, namely, by putting into effect a Balanced Budget Amendment to the Constitution.  Here is a brief history of recent efforts to do exactly this:

  • In the 1995-96 session of Congress, the House of Representatives passed (by a 2/3 vote) a BBA but it was defeated in the Senate by one vote.
  • Application by 34 states requires Congress to call a Constitutional Convention to propose an amendment. At the end of 2009, 16 states had so applied. Each year since one or more new states have also applied and now there are a total of 27. An additional 13 states are actively considering applications for a BBA at the present time.
  • As the number of applying states gets close to the required 34, it becomes more and more likely that Congress will act on its own in order to preempt a “Con-Con.” This would avoid the messiness and uncertainties of such a convention, none of which have yet occurred in our nation’s history.
  • Once 34 states have applied, however, Congress must call a convention. Any fear of a runaway convention, exceeding a limited mission, should be alleviated by the fact that any proposed amendment(s) have to be ratified by 38 states.
  • In my opinion a proposed amendment should have no restrictions on how a balanced budget will be obtained. There will be far more political pressure to cut spending than to raise taxes. Let Congress hash out the proportion of each.

Fiscal responsibility does not require the budget to be exactly balanced each year. In fact, temporary deficits can be useful as a stimulus in time of recession.  However, deficit spending has gotten so far out of control in recent years that Congress must be forced to modify its behavior.

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