Banner ad

Friday, July 22, 2011

Why a balanced budget amendment is not the answer

It sounds like a good idea. Pass an amendment so that the government would absolutely, positively have to balance its budget. But that would never be the solution. As I wrote earlier this week - if that were the solution, California would not be having any financial problems.

Peter H. Shuck, a Yale Law professor, has a column in the WSJ today to explain why we shouldn't put our faith in such a seemingly easy fix.
I can think of no other law that would empower judges to exercise more political and policy-making discretion than a balanced budget amendment. It would quickly realize every conservative's fears of an "imperial judiciary" that "legislates from the bench"—even if the courts simply did their job and did not grasp for that power.

First, the courts would be swamped with challenges to every governmental decision with significant budgetary implications, which means almost all important decisions. As federal Judge Ralph Winter pointed out long ago, the judges would have to decide who, if anyone, would have standing to sue and who the proper defendant would be. If they ruled that no one had standing, then the amendment would be legally unenforceable, a dead letter. If the judges found standing, however, a host of exceptionally controversial legal-interpretation issues would arise.

Perhaps the most fundamental questions have been posed by Rudy Penner, who was Congressional Budget Office director in the Reagan years: What is a "budget," and which budgets are covered by the amendment? This is pivotal because the amendment would create an irresistible incentive for politicians to expand "off-budget" programs or establish new ones.

Social Security, Fannie Mae, Freddie Mac, the Postal Service and the new Consumer Financial Protection Bureau are all off-budget and constitute a huge share of federal fiscal commitments. The BBA does not even mention this multitrillion-pound gorilla, nor does it deal with the creation of new off-budget spending programs which would certainly proliferate in its wake, so a judge would have to decide whether they are included. (The state and local equivalent dodge of balanced budget rules is the "special district"—some 40,000 nationwide—which often has taxing power. )

The BBA also uses the basic term "tax" as if it were self-defining, but of course it isn't. Indeed, one of the key issues in the legal challenge to ObamaCare is whether the spending mandates in the legislation constitute a tax (as the administration argues) or a penalty (as its opponents claim). Only the courts can decide—and so far they have split on the issue. This is political power of a high order, given the importance of the legislation.

Then there are the classic ploys that governments use to evade budgetary restrictions, about which the BBA is also silent. Does the amendment's term "outlay" apply to long-term capital investments such as infrastructure spending, of which the Obama administration is so fond? If not, we can anticipate lots more spending being called capital investment. The judges will have to decide whether the amendment applies or not.

Does "outlay" cover government loan guarantees—a form of subsidy used promiscuously by government to avoid budgetary constraints? Does "revenue" include so-called "offsetting receipts" such as the large amounts that Medicare beneficiaries pay for their physician and drug benefits? If so, we can expect Congress to use more of them. Again, the courts will have to decide.
It's just a gimmick, but the politicians would find ways around its wording. Think of how they've gotten around the 27th Amendments prohibitions on raising their salary in the same congressional session by making those pay increases into automatic cost-of-living increases that go into effect unless they vote them down. Don't put your faith in a balanced budget amendment. It wouldn't solve the spending problems that we are facing.


Pat Patterson said...

A line item veto amendment would make more sense though obviously with the same caveats as any other piece of legislation that the President would refuse to sign or veto.

tfhr said...

A balanced budget amendment could be written to prevent sidestepping politicians from shirking their responsibilities but then again we know who gets to write it.

I guess in a better, if not perfect world, we could have an arrangement where politicians and their staffs don't get paid until the budget is settled and in compliance. Oh yeah, and TERM LIMITS!