Debate Club

Balanced Budget Amendment Would Cripple U.S. in a Recession

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You're not going to believe this, but one of the most popular proposals in Washington would destroy millions of jobs during recessions. It would cause Congress to scale back efforts to boost the economy exactly when those efforts are most needed.

This proposal is the balanced budget amendment to the U.S. Constitution. Even though a majority of members of the House of Representatives voted for it recently, it's not going anywhere right now because two thirds of each chamber must approve a constitutional amendment before it can be sent to the states for ratification.

And it's a good thing it's not going anywhere. A report from Macroeconomic Advisers, one of the most respected economic forecasting firms, concluded that unemployment would double in 2012 if a balanced budget amendment were in effect.

[See a collection of political cartoons on the budget and deficit.]

Most economists agree that the federal government needs to spend more during economic downturns, even if this requires deficit spending in the short-term, to help offset all the layoffs and cutbacks by the private sector.

This federal spending happens automatically during recessions because more people collect benefits like unemployment insurance and Medicaid, even as revenue drops because there are fewer incomes and profits to tax. Congress can also respond by providing additional benefits to struggling families, who are likely to immediately spend any additional money they receive on necessities, which boosts demand for products and creates jobs.

But if Congress must balance the federal budget each year, lawmakers would have to slash public services like Medicaid and unemployment insurance to prevent deficits during recessions. Of course, Congress could always balance the budget by raising taxes on the rich, which seems to have little if any impact on the economy, but the recent gridlock in the Capitol has demonstrated that too many politicians have ideological aversions to raising taxes even on those who can easily afford to pay them.

[Read: GOP Frosh Slam "Hypocrisy" from Democrats on Balanced Budget Bill.]

We all agree that Congress should get the long-term budget deficit under control. It's one thing to run deficits during recessions, but failing to collect enough revenue during boom times is a problem. (And the tax cuts first enacted by the previous administration are a big part of that problem.) But a constitutional requirement for Congress to balance its budget, while seemingly simple and logical in the abstract, is not the solution.

Steve Wamhoff

About Steve Wamhoff Policy Analyst for ITEP and the Legislative Director of Citizens for Tax Justice

Tags
debt
deficit and national debt
federal budget

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#1
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Act Now to Prevent a Debt Crisis

Yes – Act Now to Prevent a Debt Crisis

David Primo Senior Scholar at George Mason University's Mercatus Center

#3
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Balanced Budget Amendment a Distraction

No – Balanced Budget Amendment a Distraction

Scott Lilly Senior Fellow at the Center for American Progress

#4
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We Don't Need a Balanced Budget Amendment

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Dangers of a Balanced Budget Amendment

No – Dangers of a Balanced Budget Amendment

Patrick Sharma Postdoctoral Fellow in the Regional Oral History Office of the Bancroft Library at UC Berkeley

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