Among the rash of constitutional amendments recently proposed and taken seriously by Congress are two that would alter the way the federal government raises and spends money. Consideration of the balanced budget amendment has become an annual ritual—the House has passed it three times and it has lost in the Senate by one vote in 1995, two votes in 1996, and one vote in 1997. The amendment would forbid federal outlays that exceed receipts unless three fifths of both the House and Senate approved. The same would go for increases in the debt limit. Another proposed amendment would require a two-thirds vote for any tax increase. This amendment was defeated by 49 votes in the House of Representatives on April 15. Both these amendments are certain to be proposed again; both should be rejected, for they are politically, economically, and structurally unwise.
Fiscal amendments to the Constitution requiring more than a simple majority in congressional voting would depart markedly from the original constitutional scheme. If enacted, they would be the first amendments to abandon majority rule in ordinary legislation. The framers viewed supermajority requirements as strong medicine, to be used only in extraordinary cases such as ratifying treaties, impeaching government officers, expelling members from Congress, overriding presidential vetoes, and enacting constitutional amendments. All else was left to simple majority vote—including taxing, spending, and borrowing measures.
The framers of the Constitution considered but rejected supermajority requirements for ordinary legislation, preferring majority rule. As James Madison warned in The Federalist No. 58, if supermajorities were required for ordinary legislation, “it would be no longer the majority that would rule: the power would be transferred to the minority.” Under the proposed fiscal supermajority amendments, that is exactly what would happen. Under the balanced budget amendment, three fifths of each house of Congress would be required to authorize deficit spending and the increased borrowing needed to finance it. That means that two fifths of either house of Congress could hold the budget hostage. What’s wrong with that? As Madison delicately put it, the few could extort from the many “unreasonable indulgences”—in modern parlance, pork—as the price for the additional votes needed for a supermajority. The amendment in that event would not eliminate deficit spending but merely alter how its benefits were distributed. Such minority holdout power would be placed in even fewer hands by an amendment permitting only one third of either house to block any tax increase.
But if these amendments are bad for democracy, they are worse fiscal policy. The balanced budget amendment reflects alarm that both the annual deficit and total federal debt grew sharply as a percentage of GNP in the 1980s and that too great a debt load is being passed on to future generations. The tax increase amendment reflects a view that maintaining or reducing tax levels stimulates economic growth. Neither of these concerns justifies a constitutional amendment rigidly tying Congress’s fiscal hands.
To begin with, not all deficit spending is evil. In fact, deficit spending has saved the nation from recession and supported economic recovery time and again since World War II. In contrast, insistence on balancing the budget in the 1930s helped to worsen that period’s severe depression. In a recession, tax receipts drop and spending on unemployment programs rises. Raising taxes and cutting government spending in a recession, by taking more money out of people’s pockets, is a recipe for worsening the situation, even to the point of causing depression. Yet that is exactly what the balanced budget amendment would require Congress to do. If the balanced budget amendment had been in place and enforceable over the past half century, the nation’s economic health would be a great deal weaker now.
In addition, the balanced budget amendment ignores the fact that long-term investments, whether in buildings, bombers, or education, produce benefits over their lifetimes that in the long run often exceed their costs. Unless the federal government were to separate its capital budget from its operating budget—a matter the proposed amendment has never addressed—balancing the federal budget each year would require capital investments to be paid for all at once rather than amortized gradually. No family or business operates that way. Telling the federal government to balance its total budget each year is like telling a family to pay up front for its entire mortgage in the same year it buys a house.
Finally, not all tax increases retard growth and not all tax decreases promote it. The huge deficits and debt increase of the 1980s arose because the deep tax cuts of the first Reagan administration failed to produce the promised increase in economic activity. And if taxes are raised in order to construct buildings, bombers, or schools, then tax increases obviously stimulate the economy.
Beyond encouraging fractious minority rule and entrenching mistakenly rigid fiscal views, both the balanced budget and the tax increase amendments would unwisely alter the constitutional system by shifting power over government spending from Congress to the president and the courts. Claiming that he was acting according to the balanced budget amendment, for example, the president might assert the power or the obligation to impound funds that Congress had authorized and appropriated. Even the potential for impoundment would give the president the leverage for arm-twisting in Congress. Like minority holdouts in Congress, the president might have an incentive not so much to decrease spending as to redirect the distribution of any cuts away from his own favorite projects and toward those of his political enemies.
And both amendments may well be taken by taxpayers as invitations to file lawsuits objecting to measures that they claim increase their taxes or to any expenditures said to unbalance the budget. Taxpayers normally do not have standing to come into court to complain about how the government is run—except when a specific constitutional provision specifically limits congressional power to tax and spend. The proposed fiscal amendments could give a wholly new meaning to that exception, drawing unelected judges deeply into matters of economic policy for which they are surely ill-equipped. When is the budget in balance? Whose estimates should be used? What if growth turns out to be faster than expected?Lawsuits over these questions could drag on for years.
All this tinkering with the framers’ handiwork might be worthwhile if it were necessary or likely to work, but it is neither. It is unnecessary because politics—ordinary politics—is sufficient to pressure the government to maintain tax levels or to reduce the deficit, if that is seen as the soundest course. Deficit reduction by the president and Congress during the first Clinton administration proved as much. What matters to the nation’s economic health is whether the federal debt, and the cost of paying to service it, is growing faster than GNP—which it has not been for the last several years—not whether there is an annual deficit in the abstract. Congress is in the best position to make this determination without the artificial constraints of constitutional amendments.
The proposed fiscal amendments are likely to be futile in any event because end runs around them are so easy. A balanced budget amendment is less likely to eliminate deficit spending than to drive it underground. For example, Congress could manipulate the “estimates” of tax and other revenues on which a “balanced budget” is based. It could shift taxing and spending “off budget” to quasi-public entities such as the Financial Assistance Corporation and the Resolution Funding Corporation, both created as part of the savings and loan bailout. Or it could transfer costs to the states by mandating that they provide services or enforce regulations without providing any accompanying funds. Moreover, states with balanced budget requirements have long used gimmicks to appear to meet them. For example, they have shifted expenses to off-budget accounts, accelerated receipts and delayed expenditures, and engaged in repeated borrowing against the same assets in order to close their budget gaps. Many of them fail to eliminate deficits anyway, despite their constitutional mandates.* This is so even though states, unlike the federal government, have the benefit of running separate capital and operating budgets. A federal balanced budget amendment is thus even more likely to bring about exercises in creative accounting.
As to tax increases, the devil is in the definition. Does a “tax increase” include a reduction in entitlements such as Social Security benefits? May an overt “increase” in taxes be avoided by a redefinition of income or of the basis for calculating tax liability rather than an increase in tax rates? Such disagreements about interpretation are inevitable and cannot possibly be settled without intricate detail more typical of the Internal Revenue Code than of the Constitution.
The Constitution properly protects minorities who cannot protect themselves adequately in the normal political process. Surely we can protect the economic interests of our own children and grandchildren adequately without writing what might well prove an empty exhortation to do so into the Constitution.
May 15, 1997
See Richard Briffault, Balancing Acts: The Reality Behind State Balanced Budget Requirements (Twentieth Century Fund, 1996). ↩