How To Balance The Budget? Just Do Itby
Congress is about to approve a constitutional amendment requiring a balanced federal budget. At first glance, the idea seems both simple and long overdue. Balance the budget within five years, no excuses. If the states can do it, why not the feds?
Yet Congress' most hard-line budget hawks--lawmakers who have struggled for the past decade to control the deficit--are deeply skeptical. One calls the amendment "absolute B.S., the ultimate in feel-good budgeting and do-nothing politics."
One reason they're so troubled is that most states don't really balance their budgets. By some estimates, more than half of all state spending is exempt from constitutional requirements. Those expenses are shifted to a raft of special districts or designated "capital" spending items. And since state and local governments have sold more than $200 billion in new bonds in the past year, balanced-budget requirements clearly haven't stopped deficit spending.
But that's not the only reason for doubt. The amendment, which would have to be ratified by three-quarters of the states, has become popular in a year when both Congress and the White House have sunk to new lows of fiscal irresponsibility. The $1.5 trillion federal budget will post a deficit topping $350 billion this year. Yet in March, President Bush vetoed a revenue bill because Congress tried to pay for new tax breaks with tax hikes. Now, Congress and the White House have agreed to borrow an additional $800 million to help rebuild riot-ravaged Los Angeles and flood-damaged Chicago.
BLOODBATH. That, of course, is exactly what is wrong with the proposed amendment. While Congress and the President fall all over themselves embracing a constitutional ban on deficit spending, they won't do what's really needed to stop the flow of red ink: cutting spending and raising taxes.
The last time they tried, in 1990, Bush and Congress shed gallons of blood before agreeing to a five-year, $500 billion deficit-cutting plan. So far, just over half of the promised savings has been achieved. But Bush now calls the package, which included a tax increase, his biggest mistake. And there is real doubt about where the remaining $240 billion is going to come from. Even so, Congress and Bush are now blissfully backing a constitutional amendment that would mandate not only those deficit reductions but also hundreds of billions of dollars more.
Indeed, really balancing the budget will require more than $800 billion worth of agonizing political decisions. Just imagine: Congress could curtail for five years all cost-of-living increases for Social Security, medicare, medicaid, aid to poor families, veterans benefits, and farm programs; freeze for five years spending for all other domestic programs, from the Federal Bureau of Investigation to the National Park Service; and slash defense spending by 40% beyond the sharp cuts already agreed to.
Those measures would yield only about half the needed savings. The rest would have to come from tax hikes, which might mean raising rates for individuals by a percentage point and imposing a 5% value-added tax on all goods and services except food, housing, and medical care.
All that would be agonizing and could well mean five more years of economic stagnation. But without such moves, the amendment won't be worth the parchment it's printed on.
GRIDLOCK. That's not to say the deficit shouldn't be cut. Today, more than $200 billion in tax revenues goes to pay interest on the debt. That's a massive transfer of wealth from the middle class to the wealthy and means that billions that could be invested in the U.S. end up overseas. Worse, the deficit debate has thrown the government into gridlock.
But an amendment mandating cuts that Congress and the President have no stomach for--and that might be economically counterproductive in the short term--debases the Constitution. After a decade of buck-passing and gamesmanship, the politicians should have learned this: No legislative fiat can substitute for political will. Two versions of Gramm-Rudman, a gaggle of budget summits, and a National Economic Commission failed because the President and Congress wouldn't swallow strong medicine.
One of these days, the nation's leaders will have to get together and tackle the deficit. But a balanced-budget amendment is a mirage. For many lawmakers, it is just a cop-out, a way to delay for five more years the inevitable choices. If they want to get the budget under control, they should "just do it"--and leave the Constitution alone.