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House's Proposed Balanced Budget Amendment Is Flawed

This column by Carleson Center for Public Policy (CCPP) Board Member Lewis Uhler was published June 21, 2011 on The Daily Caller website.

After years of indifference to constitutional fiscal discipline, Congress is once again stirring. Excessive, outrageous spending, deficits and debt, the Tea Party movement and the last election have provided a motivated majority in the House of Representatives.

Not since passage of S.J. Res. 58 in the United States Senate in the Reagan era (1982) has there been this much momentum behind a fiscal restraint amendment, generally referred to as a balanced budget amendment (BBA). The House Judiciary Committee marked up a BBA a few days ago -- House Joint Resolution 1. It is now poised for consideration by the full House and should be approved as a symbol of commitment to fundamental fiscal discipline.

Because it is unlikely to be considered seriously in the United States Senate, as that body is currently led and constituted, the amendment design has not received rigorous scrutiny. Before a new and -- hopefully -- more conservative Senate takes shape (and House conservatives add to their number), further attention should be devoted to the details of the amendment. Consider:

—Sections 1 and 2 set outlay limits for the fiscal year in question, but they are in potential conflict. Section 1 says outlays may not exceed actual receipts during the fiscal year in question; Section 2 says outlays shall not exceed 18% of "economic out of the United States," which is not defined. No method is provided for resolving the almost certain conflict between such outlay limit numbers.

Furthermore, each outlay limit number will have to be estimated because the actual outlay limits under both Sections 1 and 2 cannot be known until the completion of the year in question. And government estimators, who are notoriously wrong, will control the outcome. A preferable approach is to use a prior year's receipts or outlays (known numbers), increased by a factor to accommodate inflation and population changes as the outlay limit for the year in question.

A very positive aspect of Section 2 is the recognition that government spending as a share of "economic output," presumably gross domestic product (GDP), is a key issue. But 18% for the federal government alone is too large, according to worldwide studies of the "optimal" -- or right -- size of government. When government -- at all levels -- taxes and spends more than 18-20% of GDP, the growth-maximizing size of government has been exceeded. And those hurt most by such excess are the very people in our society for whom liberals are the self-proclaimed champions. (As recently as 1929, United States governments at all levels taxed and spent 10% of national income, with the federal government's share being but 3%. Now Washington is at 25% of GDP.) Preferable to inserting a percentage of GDP figure in the United States Constitution (and a fixed one, at that) is to provide an annual adjustment factor -- for population and inflation changes -- that will systematically reduce the federal government's share of GDP over time.

—Section 4 constitutes a significant change from our current Constitution, because it creates in the president, for the first time, constitutional responsibility and authority to present a budget -- albeit in balance.

For much of our history, the president did not propose a budget. In the Budget & Accounting Act of 1921, which established the Bureau of the Budget, now the Office of Management and Budget (OMB) and the General Accounting Office (GAO), the president was authorized to propose a budget (statutorily). Presidents have always shaped the budget and spending using their negotiating opportunities and veto pen. Wearing their chief administrator hat, earlier presidents sought to save money from the amounts appropriated by getting things done for less, impounding funds they did not think essential to spend. Congress's "ceiling" on an appropriation was not also the spending "floor" for the president, as it is now.

Section 4 appears to give the president co-equal power with Congress to shape the budget. At a minimum it is likely to create a conflict over the amount of the annual outlay limit. The president surely will be guided by his own OMB numbers, which will undoubtedly differ from the CBO's calculations of the outlay limit for Congress. We should not start the budget process each year with this kind of conflict. Better to restore the historic role of the president to impound and otherwise reduce expenditures (by repealing and revising appropriate portions of the Budget Control & Impoundment Act of 1974) so that a fiscally conservative president is a revitalized partner in cutting the size of government.

—Section 5 requires a supermajority vote for "a bill to increase revenues." Whether one agrees or disagrees with making tax increases more difficult, this language is troublesome because it requires some government bureaucrat or bureaucracy to make a calculation or estimate of the effect of tax law changes on revenues. Proponents of a bill to increase cash flow to the government will argue that their tax law changes are "revenue neutral" and will likely persuade the Joint Committee on Taxation (JCT) or CBO to back them up. Once again, estimators would be in control. Better to talk changes in tax rates and bases or new taxes. Estimators can't fool with these.

There are other issues, as well, with debt limit and national emergency supermajority votes and definitions. While this BBA -- H.J. Res. 1 -- deserves a "yes" vote as a demonstration of commitment to constitutional fiscal discipline, there are opportunities for retooling that will improve the product in the future.