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The Budget Debate

This is a research paper I wrote a long time ago back in the mid 1990's during the debate at that time regarding the passage of a balanced budget amendment.  The budget deficit of course shrank during the following years to actually form a surplus.  Our legislatures raided this surplus, lowed taxes, and decided to start a war at the same time that the economy took a slight downturn.  Several years of deficits continued in the early 2000's until now our current president has devised a plan to resolve the deficits by the end of the decade.  It sounds all too familiar which is why this research is timely and applicable even today.

It's unfortunate that our government can't seem to live within its means for a variety of reasons.  Our debt and deficits have weakened our economy, our currency, and I believe our nation.  So, even with all its potential pitfalls, I feel it is time that the debate over a balanced budget amendment to the constitution be reconsidered.  Our representatives in the federal government have proven time and time again that they have no fiscal restraint and I feel that a balanced budget amendment to the constitution is warranted to impose the restraint that our government lacks.

 

 

A Balanced Budget: Dream or Reality

           

The United States' debt as of January 1, 1996, stood at $4,991,640,307,875.68 (U. S. Debt Clock). (On January 1, 2008 stood at $9,201,742,848,227.04)  This enormous debt has accumulated over the last 60 years as a result of recurring budget deficits.  Budget deficits were never a problem until the 1930's during which the government's role in the economy expanded as a result of the Great Depression. Over our country's history there has been a motivation to refine the budget process and to control deficits.  Today, the nation is at a critical point in this progression.  Deficits and the debt seem uncontrollable and will only get worse unless Congress and the President agree on a plan to balance the budget and protect the nation's economy from ruin.           

            The budgetary process has been developing from our country's inception.  The Constitution gives Congress the right to collect revenue and to spend for the "general welfare of the United States."  It does not lay down any formal process for designing and passing a budget; rather the process has evolved into a mixture of tradition and laws.  In the early days of the Union, the budget was small and of little consequence to the economy.  This state of affairs continued to the middle of the 19th century, or about the time of the Civil War.  At this time the previous single annual appropriation bill was split up among different committees.  The Ways and Means Committee was stripped of all but its taxing and tariff authority.  The Appropriations Committee was established to pick the slack, but it too was over time stripped of its power, which was spread out over many committees.  This decentralized budgetary authority has had the effect of increasing the size of the budget.  More lawmakers are involved in the process and will make sure that something is in it for them and their constituents.  The increasing size of the budget launched a movement to centralize the process. 

            The president's role in the budgetary process became more important during the late 19th and early 20th centuries from the movement to centralize the budget making process.  Congress was reluctant to grant the president much power over the budget because they felt it infringed on their Constitutional authority.  As a result of budget deficits after twenty-eight years of surplus, a special commission in 1912 recommended the executive branch be responsible for presenting a budget (Franklin, 1993).  Taft tried to assert this role, but was opposed by Congress.  During World War I, unprecedented budget deficits mounted.  From 1916 to 1919, the budget increased from $700 million to $20 billion (Franklin, 1993).  As a result, a special House committee recommended the establishment of a Bureau of the Budget within the Department of the Treasury and that the executive branch be responsible for submitting an annual budget to Congress.  These recommendations were passed in the Budget and Accounting Act of 1921.  The Bureau of the Budget presented all the proposals of the various agencies to Congress, and the president became much more important in deciding budgetary policies.  The Bureau of the Budget was moved to the Executive Office of the President in 1939 and renamed in 1970, the Office of Management and Budget  (OMB) (Franklin, 1993).  The OMB has become a very important player in the budget.  It controls requests for funding and oversees and can reject agency regulations to make them more cost effective.  The president's increasing power over the budget is the result of not only governmental trends, but also of our nation's economic evolution from many small localized economies to the now global economy.  Congress is still responsible for enacting appropriation legislation, but now the starting point is with the Executive Office of the President.

            In the early 1970's, deficits began to mount that continue to this day as a result of President Johnson's Great Society and its high entitlement spending.  The thirteen separate appropriation bills made it hard to cut spending.  Coordination between them was needed.  Congress again chose to sacrifice some of its power to the president.  Although it made a sacrifice, it avoided making politically unpopular budget cuts.  President Nixon used this new power and impounded money from four farm programs in 1972 that were important to Congress (Franklin, 1993).  As a result Congress wanted to regain some of its delegated authority and be able to adopt balanced budgets on its own without solely relying on the president.  In 1973 a conference committee drafted the Congressional Budget an Impoundment Control Act, which was overwhelmingly approved by both houses of Congress in 1974 (Franklin, 1993).  This important act created the Congressional Budget Office (CBO) and the two House and Senate Budget Committees.  The CBO provides analyses of the budget and the economic forecasts of how the budget will relate to economic conditions.  The CBO is a nonpartisan office whose forecasts are thought as of more reliable than the sometimes biased  OMB's.  The two Congressional budget committees are responsible for drawing up budget proposals separate from the president's.  They were to see that spending was kept down under established ceilings by guiding the appropriations, authorization, and taxation committees to consider the budget plan.  The budget committees could reconcile proposals to keep within specified guidelines.  However well intentioned, this act did little to balance the budget.  This act did place controls on the adoption of new entitlements, but did little to stop the growth of the entitlements already enacted during the 1960's.  This act was expected to result in smaller deficits because members were supposed to be reluctant to vote for resolutions specifying large budget deficits.  The 1974 budget was smaller (0.4 percent of GDP), but deficits again ballooned in 1975 and 1976 (Cox et. al., 1994).  Since Congress would be unlikely to adopt more entitlement programs with a high deficit, the act would have little impact.  Also, just reforming the budget process will do nothing to balance the budget.  Budget priorities have to change which an act of Congress cannot do.

            In 1985 a noble attempt to finally balance the budget was brought before Congress.  The Gramm-Rudman-Hollings (GRH) Emergency Deficit Control Act was made law.  This act was as close to a balanced-budget amendment as Congress has come.  The act required Congress to slowly balance the budget over a six year period with deficit reduction targets.  If Congress was unable to meet the target, funds had to be sequestered in the amount exceeding the deficit target.  This act was successful in that it gave Congress "something to shoot for" when deciding the budget and did help to slow the growth of the deficit.  However by 1987, the deficit for the next fiscal year was expected to exceed the GRH target by $60 billion (Cox et al., 1994).  Further spending cuts and tax increases cut that figure in half, but the target was still not reached.  Rather than allowing for sequestration, Congress raised the targets and postponed the balanced budget to 1993.  This act points out some of the problems with balanced-budget legislation.  The first deals with what actually constitutes the budget.  Social Security receipts are always in surplus, but this money goes directly into the trust fund and cannot be touched by Congress.  Do we count this surplus as part of the budget?  If Congress needed to get below a deficit target, it could, on paper, count this money as part of the budget to offset the deficit, when it is clearly not.  Since economic forecasts play such a big role in budgeting, their reliability is important.  If OMB figures are used, the numbers may be entirely fictional yet be used in the GRH process.  GRH is just a law.  An act of Congress can be easily amended.  This is an advantage and disadvantage.  If the economy really needs a boost, the deficit target can be lifted to allow for increased outlays.  If the economy is fine, but Congress can't make the cuts, the law may be amended.  This is what happened in 1987 when Congress amended the act to put off a balanced budget (Franklin, 1993).  The GRH Act showed how a balanced-budget amendment may be necessary, but might hurt by not allowing deviation during economic downturns.

Committees

            Four basic types of committees are the key players in the budget making process.  Authorization committees decide what services the government is going to provide and how much is to be spent on those services.  This is the first step in the appropriation process.  The authorization committees can set limits or ceilings on the amount of money appropriated.  Roughly 40 percent of the authorizations set ceilings (Franklin, 1993).  The remaining authorizations are, for the most part, open-ended.  These authorize the spending of "such sums as may be necessary to carry out the provisions of this act" (Franklin, 1993).  Most entitlements are funded using open-ended authorizations.  As of late the authorization committees have become increasingly attuned to where the money is coming from as the deficit has grown larger.  There also exists some friction between the authorization committees and appropriation committees.  Because the appropriation committees actually decide how much is to be spent, the authorization committees fear that their policy making power may be slipping away.  At the same time, the budget committees can use their power of reconciliation to deny funding to programs created by authorization committees.  These encroachments have led to worsening relations between some of the committees.  Examples of House authorization committees are the Agriculture, Armed Services, and Judiciary committees.  Authorization committees basically decide what the government's priorities are, and how much should be allowed to be spent on them.

            The full Appropriation Committee and its thirteen subcommittees are very powerful in that no programs can be pursued without funding.  Because of this, the House Appropriation Committee is a very sought after and unified institution.  Most legislation from the Committee is debated under closed rule and is in some ways privileged.  In both houses, each Appropriation committee is divided into thirteen subcommittees; one for each separate appropriation bill.  Each of these appropriation bills must be passed by Congress and signed by the president.  During the government shutdowns of 1995, not all the appropriations bills were signed by President Clinton.  This resulted in only parts of the government being shut down for lack of funding.  Examples of appropriation subcommittees are Defense, Interior, and Transportation.  The appropriation committees use the limits established by the authorization committees and decide exactly how much money is to be spent on those programs.

            Taxation committees work with bills that affect the amount of revenue the government takes in.  In the House the powerful Ways and Means Committee and in the Senate, the Senate Finance Committee are assigned to this task.  They can make revisions to the tax codes and alter how much money the government is taking in.  Positions on either of these committees are highly sought after.  There does exist tension between the budget and taxation committees.  The budget committees have virtually no control over taxation and are at the will of those committees.  The budget committees have been assigned a very difficult task.  They are to try reconcile and coordinate the budget with the GRH numbers.  In doing this they infringe upon virtually every other committee and meet opposition at every turn.  The House and Senate Budget Committees are different institutions.  The House's lacks true leadership because the members rotate every four years; hence, it has been less than successful.  The Senate Budget Committee has been successful.  It is a true, standing committee on which members serve for as long as they are in the Senate.  The authorization, appropriation, taxation, and budget committees are the four key committees in the very complex budgeting process.

            The Budget Reform Act of 1974 established a schedule for budgeting which is rarely followed to the letter by Congress and the President.  October 1 is the beginning of the fiscal year.  By this date all action for the next year's budget should be completed.  This includes the passage of all thirteen appropriations bills.  This has happened only once, so Congress must pass a temporary stop-gap appropriation bill or continuing resolution.  This continues to fund government programs which usually run out of money on October 1.  On average, Congress will pass two to three of these continuing resolutions (Franklin, 1993).  With the budget crisis in late 1995, Congress, specifically House freshmen, refused to pass the continuing resolutions in order to force action on the budget.  By November 10, the president is required to pass the current services budget.  This is the cost of maintaining current programs at the same levels adjusted for inflation.  This is used as the "baseline" for budget considerations for the next year.  Any cuts made the next year below this baseline are considered reductions in spending.  In mid-January, the President must submit his budget in accordance with the Budget and Accounting Act of 1921.  This budget is a fairly accurate assessment of the next year's budget and its deficit.  The budget debate will stem from this budget.  Congress will usually make cuts in this budget by years end.  Before April 15, Congress is to submit its budget resolution.  The budget committees develop these resolutions using the CBO and try to stay within GRH guidelines.  This resolution is not signed by the president, but is an internally binding agreement that should guide Congress through the appropriations process.  At about this time, the Budget Committee may begin the reconciliation process.  "Reconciliation is the process in which committees are required to adjust their spending plans to the ceilings that govern their areas" (Davis, 1987, p. 66).  The committees report back to the budget committees the changes they have made, and these changes are presented to Congress in the form of reconciliation bills.  Reconciliation must be completed by June.  By June 30, all the appropriations bills should have been passed--this never happens.  On September 30, the fiscal year is over and Congress is supposed to be done with next year's budget.  This rarely occurs, so after this date Congress frantically works to get all the appropriations bills passed knowing that the government may shut down if they do not. 

            Although well-intentioned, the restructured budget process has not performed its goal--balancing the budget.  When the deficits become large, Congress has historically opted to change the budgetary procedure.  The process has become more refined, but "Congress has trouble living with the rules it lays down for itself" (Davis, 1987, p. 88).  The deadlines it has enacted are never used, and by the end of the year Congress is in such a hurry to get the appropriations bills through that it has little time to deal with balancing the budget.  This can be illustrated by using 1995's budget.  In 1995, Congress is very concerned about balancing the budget and is consequently far behind schedule.  Congress has had to shut down the government twice while trying to pass a balanced budget plan.  Often large continuing resolutions are passed beforehand that contain many riders and can be termed "Christmas tree" bills.  Members use the resolutions to get their pet projects passed with little debate, so the government can remain open.  The reconciliation process written into the 1974 Budget Act has served a useful purpose.  Reconciliation is a very useful tool for Congress to reduce expenditures and obviously essential to keep spending under control.  In November of 1989, Congress passed a reconciliation bill that cut $14.7 billion dollars from fiscal year 1990's budget (Franklin, 1993).  There have been some problems with the process.  The two budget committees created by this act may be perceived as threats by long standing, firmly entrenched House and Senate committees.

            Gramm-Rudman-Hollings was supposed to be "the fearsome sword over members' heads" (Davis, 1987, p. 91), but an act of Congress can be changed.  Members have found it hard to sacrifice for a balanced budget.  "What is good for the member is not necessarily good for the institution" (Franklin, 1993, p. 50).  The revised budgetary process was not able to change the priorities of Congress, but the voters did in the 1994 election.  Many new freshmen members of Congress, like Mark Neumann (R-WI), were elected primarily to get the budget balanced.  The election sent a message to Congress to change their priorities and get the budget under control.  Along with the new budgetary procedure and force of public opinion, Congress now is in a very good position to get a balanced budget passed.

Spending

            The federal budget includes four basic spending areas: defense, non defense discretionary, entitlements, and interest on the debt.  The defense and non defense discretionary spending areas make up the controllable portion of the federal budget.  These areas are deemed controllable because they are included in the annual appropriations bills, and their funding levels can be set.  These controllables make up only 25 percent of the budget (Franklin, 1993).  Two thirds of this is appropriated to defense, and the rest goes to civilian programs (Franklin, 1993).   Defense has been cut back in recent years after the enormous  buildup of the 1980s' because of the fall of the Soviet Union and the end of the cold war.  Non defense discretionary spending includes most everything except entitlements and the debt interest.  Examples are "transportation, job training, education, environmental protection, and crime prevention" (Walker, 1993, p.13).  Spending in these areas can be considered an investment in the U.S. that can expand the productive capacity of the economy.  When cutting the budget, these areas are the much easier to cut than entitlements.  Entitlements require that a law be changed.  Cutting discretionary spending only requires the appropriations committees to allocate less money for a program.  If the budget is ever finally balanced, it is necessary to lower spending on consumption, like entitlements, but keep investments that will expand our economy funded (Adams, 1995).  "Closing the deficit by cutting public investment in research and development, education,...would not serve the economic objectives of deficit reduction" (Orrick, 1995, p.39).   Expansion of the economy will increase revenue as companies become more profitable.  When the budget is finally cut, lawmakers must leave domestic spending intact (Adams, 1995).

            Entitlements make up the largest part of the budget.  They are programs like Social Security, Medicare and Medicaid, veteran's benefits, and farm aid.  They are named entitlements because any person who qualifies is entitled to the benefits.  Entitlements are not subject to the annual budget.  The only way to change their spending levels is to change the laws mandating them.  That is why entitlements are included under the uncontrollable category.  In reality, it is best to say that they are "politically uncontrollable" (Franklin, 1993);  voters don't like to see reduction in benefits.  In fiscal year 1994, entitlements amounted to one half of all federal money spent and are growing rapidly (Walker, 1993).  The population is growing older and more people are going to be eligible for Social Security and Medicare.  This is why entitlements have to be at the heart of any proposal to cut the budget.  If they are maintained at the current level, crushing tax burdens will have to be imposed on the next generation to pay for retirees.  Means testing is one way that entitlements could be cut.  Currently more than half of all entitlement money goes to households making more than $30,000 a year, and in 1993 $150 billion went to households making over $50,000 a year (Walker, 1993).  Only Medicaid and AFDC are means tested.  Many of the programs once designed to help the poor are helping the middle class.  Most economists and budget experts agree that this is the problem with entitlements (Walker, 1993).  Money has to be given to those who need it most.

            The interest on our national debt is the fourth area of spending.  The United States must pay interest to all its bond holders.  These bond holders include corporations, banks, individuals, and foreign investors.   The interest paid to these bond holders was 14 percent of the total budget or $290 billion in 1993 (Cox, et. al., 1994).  When the interest is kept within the United States, it can help the economy, but about a third of the debt is foreign owned (Walker, 1993).  Wealth flows out of the U. S. when interest is paid to them.  This is very deleterious to the economy.  More and more of our debt is being held by foreign investors.  Even though government bonds are a very safe investment, interest rates must rise to entice investors to buy more of the debt.  Higher interest rates will make interest payments larger, deficits higher, and slow the economy to further decrease revenue.  Net interest payments are projected to increase by roughly 4 to 5 percent annually through FY1998, but then accelerate faster as the debt swells (Cox et. al., 1994).  As the national debt and deficits grow, so do the interest payments on it.  As the interest payments get larger, the deficit will increase which will increase the interest.  This vicious cycle can be best compared to a snowball rolling down a hill that will eventually crush those underneath it.

 

The Deficit

            Over the past 200 years the United States' government has piled up a national debt approaching $5 trillion.  This enormous debt is primarily the result of annual budget deficits occurring in the latter half of the 20th century.  The debate of running up a deficit began with the founding fathers.  James Madison was of the opinion that borrowing money produces economic prosperity.  Thomas Jefferson had a much different opinion.  "We should consider ourselves unauthorized to saddle posterity with our debts and morally bound to pay them off ourselves," Jefferson wrote.  Until the 1930's this was the general sentiment of the county.  Between 1789 and 1930, there were 45 years with a budget deficit and 95 years with a surplus.  Usually, a year with a deficit was followed by a surplus (Davis, 1987).  Between 1931 and 1986, the picture drastically changed.  In only eight years did the government have a surplus, and in the remaining 48 years there was a deficit (Davis, 1987).  This change is the result of the public expecting more from the government.  Before the 1930's, the federal government was not involved with the economy, even in times of serious recession.  During these times it was believed that a balanced budget was necessary.  Even without government intervention those economic downturns always seemed to work themselves out.  The 1930's brought on the Great Depression.  The United States had never seen a depression that bad with more than a quarter of workers unemployed.  President Roosevelt initiated his New Deal to pull the country out of poverty.  In the New Deal, the government became an active participant in the economy.  Programs like Social Security, the FDIC, and unemployment compensation were enacted.  This drastic change in the government's role was based upon the theories of the economist John Maynard Keynes.  He believed that it is the government who is responsible for balancing the levels of supply against demand.  When demand is too little, the government should pump money into the economy possibly raising a deficit.  When demand is great, money should be taken out to combat inflation and repay the debt.  Roosevelt along with the rest of the country embraced half of his philosophy.  Deficits were used to help the struggling economy, but necessary surpluses did not materialize.  This dangerous conception totally reversed the role of government. 

            After the depression came World War II along with large wartime deficits.  These deficits and those incurred during Vietnam made small contributions to the current debt, but not nearly as much as the 1980's.  It took 205 years to accumulate a national debt of $1 trillion.  It took only nine years to triple that figure (Walker, 1993).  Reagan came into office in 1980 with three main goals.  He wanted to build a strong defense, reduce taxes to foster growth, and to balance the budget.  He succeeded in two.  Reagan figured that the tax decrease would give a boost to the economy thereby increasing revenue.  At the same time, billions were spent on a peacetime defense buildup.  The combination of decreased revenue and increased expenditures caused deficits to skyrocket.  Reagan did make some cuts, but had to leave major entitlement spending untouched because of Democratic opposition.  "We thought that somehow we could have it all," recalled Leon Panetta former director of the OMB.  "We could cut taxes, raise defense spending, raise benefits- and the bill would never come due."  The 1980's brought prosperity, but no one seemed to realize that the "bill would come due."

            One of the biggest concerns over the deficit is that the debt is being shifted to the next generation.   This doesn't necessarily happen when government bonds are bought by U. S. citizens. The deficit is paid for each year by the sale of treasury bonds on which interest is paid till their maturity.  A bond could be considered a loan within the current generation.   The bond's interest will be kept within the United States, and the bond ultimately be paid back to someone in the next generation.  If the bonds are foreign owned, it is completely different.  Interest will flow out of the U. S., and the bond will have to be paid back by the next generation to foreigners.  This does shift the burden to the next generation.    

            The deficit is primarily the result of politicians unwilling to make sacrifices to please their constituents (Oppenheimer, 1990) .  CBO polling shows that for the last 50 years citizens have supported a balanced budget.  The same poll shows that citizens support increased spending and decreased taxes (Saturno, 1994).  The public puts lawmakers in a very tough position.  "If there is a conflict between getting elected and solving the budget problem, the political choice will invariably be in favor of election" (Oppenheimer, 1990, p.21).  Deficit spending allows for increased spending without a tax increase.  The hidden costs of this are higher inflation and interest rates.  According to Ernest Oppenheimer, "deficit spending has become a substitute for responsible behavior by the government" (1990, p.22).  Deficit spending seems to be on the way out, though.  As of early 1996, a balanced budget deal seems very likely with the President and House Republicans getting closer on a budget deal.  Destructive deficit spending seems to be on the way out. 

            Two schools of thought concerning the effects of the deficit are much debated.  On one side are the "deficit hawks" who believe the budget must be reduced now or risk the loss of all future prosperity.  Others believe that the deficit is not a big enough problem to justify spending cuts.  The deficit hawk's economic concerns for the current deficit rest on dissatisfaction with the Nation's economic progress and prospects for the future.  The current deficit serves no purpose; there is no recession or war in which the U. S. is involved.  The government is wasting money on consumption and not investing in infastructure.  70 percent of the already small amount of money U. S. citizens save is being borrowed by the government (Walker, 1993).  By investing in bonds rather than placing money in banks, the savings pool is drained by the deficit.  This causes interest rates to rise which make it harder for businesses to borrow money to expand their productive capacity.  This shortfall of total savings relative to investment in the United States is picked up by foreign investors who are attracted by the high interest rates the shortfall produces.  If foreign investors become unwilling to cover the shortfall, interest rates will have to rise sharply, or the dollar's exchange value fall to attract more money.  Lower exchange rates would impose a drag on living standards by raising prices of imports and worsening the Nation's terms of trade.  The deficit hawk's worse case scenario would be a $7 trillion debt by 2010 which would grind the United States' economy to a halt (Walker, 1993).  There would be double digit unemployment, a dry Social Security fund, and massive tax burdens.  The standard of living would become lower than the 1930's during the depression.  "We are about to destroy ourselves" stated Warren Rudman.

            Some financial experts believe that deficits, no matter how big, and a large debt do not matter; the danger is exaggerated.  Economist Robert Heilbronner argued that "to worry about the present size of the debt is to magnify a mouse into a monster.  It is simply a false alarm."  Following World War II,  the debt was larger than the gross domestic product (GDP) of that time, yet the economy prospered.  For comparison, the debt is 53 percent of GDP today (Walker, 1993).  Deficit hawks point out that after the war money was spent on expanding the economy rather than consumption as it is today.  The deficit skeptics believe that as long as the growth of the economy outpaces the deficit, a $200-$250 billion deficit makes little difference (Walker, 1993).  In addition, two thirds of the debt is held by Americans (Walker, 1993).  This is money that we owe ourselves and will flow back into the American economy.  But, deficit hawks point out that 15 to 20 percent of the debt is foreign owned, which means that every year more than $50 billion in interest payments flow out of the economy (Walker, 1993).  Today it seems that most side with the deficit hawks as is evident from the 1994 election in which many Congressmen were elected primarily to balance the budget.

 

Balanced Budget Amendment

              

            One of the most popular ideas to prevent budget deficits has been the balanced-budget amendment (BBA) to the Constitution.  Prior to the 1930's, the BBA was not an important issue because deficits were so uncommon.  It did become an issue thereafter.  Harold Knutson was the first to propose such an amendment in the 74th Congress (Saturno, 1994).  Since then many BBA's or like proposals have been introduced to Congress, recently at the rate of about 30 a year (Saturno, 1994).  The flurry of recent large budget deficits has the made the proposal popular as a means to solving the problem. 

           

            According to some observers, the deficit problem is due to a budget process which permits the Government to run persistent substantial deficits, or to the political system wherein deficit  spending may be rewarded.  The fact that responsibility for deficits cannot be indisputably assigned to any on action or actor,... leaves balancing the budget as a visible, but unrealized, priority.  This has meant a strong surge of support in recent years for measures guaranteeing a balanced budget... (Saturno, 1994, p.3).

 

Even Reagan, during whose term deficits piled up, was in support of a BBA; "a constitutional amendment is necessary to limit spending," stated Reagan.  Reagan's successor, George Bush, was too in support of the BBA.  President Clinton, however, referred to the amendment as the "budget gimmick", which would cause the courts to become involved.  In the 1994 Congressional election, the BBA was the number one item on the Republican's "Contract with America".  Many campaigned on the issue and were elected because of it.  The amendment passed the House but was rejected by the Senate by a vote of 63-35 in early March, 1995 (GOP, 1995).  Majority leader Robert Dole voted against the amendment to be able to have a Senate re-vote if enough support could be found.  The balanced budget amendment is supported by a majority of Americans, yet has been controversial.

            The main argument against the BBA rests on the government's ability to combat recession.  During a recession, revenue falls and outlays increase.  This increase is due to more people being eligible for unemployment benefits and other like government aid programs.  Revenue falls because people are making less money and pay less in taxes.  According to the BBA, the budget would have to be balanced during these times.  This would require the government either to increase taxes or cut spending, which is just the opposite to what should be done during a recession according to Keynesian economics.  This would cause recessions to be longer and deeper.  The "BBA would limit the federal government's ability to respond to a downturn in the business cycle" (Pelavin, 1994).  The proponents refute this argument because most BBA's include provisions to provide for emergency deficit spending authorized by a super-majority vote in Congress.  In times of need, the country could deficit spend to get things moving again. 

            Opponents of the BBA argue that the Constitution is not the place to incorporate any particular fiscal policy.  The "Constitution is not intended to embody a particular economic theory," stated Justice Oliver Wendell Holmes.  Archibald Cox more recently concluded the BBA "would reduce the respect for, and therefore the effectiveness of, our bulwark of liberty."  Proponents argue just the opposite.  There have been attempts to balance the budget through statute, like GRH, but Congress has either disregarded, or amended the laws.  This is much harder to do with an amendment to the Constitution. 

            Opponents also stress that the judiciary will get involved with the budget process as a result of the BBA.  "The results of such an amendment would be hundreds, if not thousands, of lawsuits around the country...," stated Judge Robert Bork.  Suits could be brought regardless of their merit.  If suits are brought, the judicial system might take years to review a case for a budget years back.  This would slow the system and create a mess.  Proponents of the BBA say this would not happen, and the number of suits would be limited.  They say that most persons do not have the standing to bring suit.  The precedent of Baker v. Carr would place most cases outside the realm of judicial review.  In addition, the suits would not present a case or controversy as mandated under Article III. 

            The BBA could also be easily circumvented by Congress and the President.  By declaring some expenditures off-budget or using similar budget tricks, the appearance of a balanced budget could be created.  Proponents believe this would not happen because the BBA would force true action.  They say that an amendment to the Constitution would be hard to ignore. Congressmen would have the moral responsibility to obey the Constitution, and if they don't, voters would punish them at the polls. 

            There is currently nothing stopping Congress and the President from balancing the federal budget.  The BBA is another procedural change that Congress has envisioned as a way to finally solve their budgetary deficiencies.  Procedural changes have not worked in the past for one reason-- they didn't change attitudes.  In 1994 and 1995, attitudes have changed, and Congress is currently working on a balanced budget without the restrictions of the amendment.  The amendment only ties the hands of government when facing economic emergencies.  By accepting a balanced budget willfully, Congress can work at its own pace and balance the budget correctly.

            Proponents of the BBA focus primarily on the economic benefits to be derived from a federal balanced budget, which only an amendment can provide.  With a balanced budget, economists predict drops in interest rates.  This would be the result of looser Fed policy because of decreased Federal borrowing demand. This sharp drop in interest rates would be a boon for the economy.  The trade imbalance would also be attacked by the balanced budget.  The balanced budget would bring about increased optimism of the American people about the economy.  Economists also believe that a balanced budget would combat still another problem, the U. S.'s low saving rate.  By increasing the amount of capital available, businesses could become more profitable and workers' salaries would rise, thus more money to save.  "Removing the federal budget deficit would take care of the national savings problem," said Allen Sinia, chief economist at Lehman Brothers in New York.  "That would lift our productivity and potential output and there would be more to go around for everybody."

            This boon after a balanced budget will not come without sacrifice.  As the government cuts back, economic growth will be slower and unemployment higher as nearly $1 trillion is trimmed from the budget with the current 7-year plan (Associated Press, 1995).  Most analysts don't expect the cuts to trigger a recession as long as the Fed lowers interest rates.  This will cushion the economy from the spending cuts. 

            The states generally support a BBA, but do have concerns.  There was a movement in the late 1970's to call for a balanced budget constitutional convention since Congress seemed unable to get one passed.  32 of the required 34 states had passed resolutions requesting a constitutional convention (Saturno, 1994).  The concerns of the states' rest on a possible shift of cost from the federal government to them.  The shift could be in the form of unfunded mandates, to which states have been strongly opposed.  "Once state legislatures think about it, they are likely to be all for a balanced federal budget, but don't balance the federal budget on the backs of the states," said Washington's Governor Nelson.

            Congress and the President are currently working on a plan for a seven year balanced budget without the BBA.  The two sides have come closer together over the long budget battle.  They have agreed to a seven year plan and to use CBO numbers.  The President was initially in favor of a ten year plan and was opting to use the OMB for economic forecasts.  The budget battle has caused two government shutdowns with the second being longer but less severe as the first.  It is less severe because more appropriation bills have been passed since the first.  The President and Congress still need to reach a compromise on entitlement spending like AFDC and Medicare and Medicaid.  Congressional Republicans want to give Medicaid money directly to the states.  Clinton insists that a federal guarantee of coverage be maintained.  The tax breaks proposed by Republicans, particularly the freshman class, have also been debated.  Democrats consider the tax breaks to be only for the rich.  Republicans used the tax cuts as a campaign theme and want to keep to it.  The most interesting aspect of the situation is that it is the 73 Congressional freshmen who are responsible for forcing action.  They have been adamant about getting a balanced budget plan passed.  They successfully have blocked legislation to end the shutdowns and are a major force in the debate.  With the current situation in Washington, it does seem likely that the opposing sides will agree on a balanced budget plan.

            The budgeting process has been continually evolving over our nation's history.  The evolution has been caused by attempts to end deficits and was accelerated during these times.  By 1996, recurring deficits have accrued an enormous debt that is hurting our nation's economy and could do serious damage if left untouched.  This fact has been realized by the United States and its government.  A desire to balance the budget and stop deficit spending has materialized as a result of this realization.  The government has responded to the nation's desires and is currently preparing a plan to balance the budget which will hopefully keep the nation fiscally sound for the next generation.            

 

 

Works Cited

 

Adams, J. (1995). Prof. Economics at Beloit College. Personal Communication: Interview.

 

  This interview provided information on the economic aspects of the budget and balancing it.  Prof. Adams would       like to see the budget balanced, but it must be done right, that is by cutting consumption.

 

Associated Press. (1995, October 31). No pain, no gain. The       Janesville Gazette. p. 1.

 

  Article talks about the economic benefits form a balanced budget like lower interest rates and a higher savings    rate.  It also mentions the negative aspects of a balanced budget like the possibility of recession during the    cutbacks.

 

Beeder, D. (1995, January 29). Nelson fears shift in cost to      the states. Omaha (Neb.) World Herald.

 

  Provides information about the fear that government will   place the burden on the states.  Gov. Nelson of Washington     is interviewed about the subject.

 

Church, G. (1995, May 22). Tearing into the deficit. Time. [http://pathfinder.com/@@vAS4GFfxQEAQHRL/time/magazine/domestic/1995/950522/950522.cover.html].

 

  Talks about the possibility of a balanced budget and how   the Republicans might actually accomplish it.  Gives   information about how it is going to be done and what has   to happen. 

 

Cox, W., Kiefer, D., & Zimmerman, D. (1994). A balanced     budget Constitutional amendment: Economic issues. Washington D.C.: Congressional Research Service.

 

  A very in depth study of the economics of the BBA.  Provides statistics about the BBA and of past legislation.    Gives the pros and cons of the BBA.

 

Davis, B. (1987). The national debt. New York: Franklin     Watts. 

 

  Gives a description of the debt and how it has grown.      Provides background on many aspects of the debt including       economics, foreign investment, and previous laws.

 

Franklin, D. (1993). Making ends meet: Congressional budgeting in the age of deficits. Washington D.C.: Congressional Quarterly Inc.

 

  Has much information about the budgeting process and its   history.  Includes the budget timeline and many laws passed.  Provides an in-depth analyses of the deficit and   how it has grown. 

 

GOP can't win 'em all. (1995, March 2). Time Daily.    [http://pathfinder.com/@@4tWh9WFfxQEAQHIL/time/daily/time/ 1995/950302.td.html]

 

  This is just a brief news byte about the Senate rejecting the BBA in early March.

 

Hill, P. (1995, February 3). Clinton's chief economist      flails balanced-budget amendment. Washington D.C. Times.

 

  Provides some information about economic concerns of the   BBA.  Reiterates many of the same arguments in other      articles.

 

Oppenheimer, E. (1990). Balancing the federal budget: The   cure for U.S. wealth dissipation. New York: Pen and Podium      Inc.

 

  The author of this book really wants a balanced budget and       tries to convince the reader of it. It provides the view of those who fear the worst from a balanced budget.  The   book contains interviews with Republicans and Democrats on       the subject and provides solutions to the problem.

 

Orrick, S. (ed.). (1995, February). Balancing the federal   budget. Congressional Digest.

 

  A periodical entirely devoted to the question of the BBA.        It gives information on all aspects of the BBA and provides the written testimony of experts on the BBA before the House Judiciary Committee.

 

Pelavin, M. (1994, December 12). Legislative update: Balanced budget amendment. [gopher://isreal.nysernet.org/0              0/ajcongress/pubs/bba].

 

  This article is strongly opposed to the BBA and lists many       arguments against it from economic to Constitutional    reasons.

 

Riley, G. (1995). President of Bank One Janesville. Personal               Communication: Interview.

 

  Mr. Riley provided more economic information about the           deficit and how it affects banks.  He provided information     about government bonds and how the budget effects interest    rates.  Mr. Riley is in favor of a balanced budget and a    Constitutional requiring it.          

 

Saturno, V. (1994). A balanced budget Constitutional amendment: Background and congressional opinions.  Washington D.C.: Congressional Research Service.

 

  Shows the history of the BBA and many other attempts to    pass it.  Gives the other possible ways to balance the budget and how some have faired.

 

U.S. Debt Clock. [http://www.brillig.com/debt_clock/].

 

  Tells the current national debt and how much it is   increasing each day along with each person's share of the   debt.

 

Walker, T. (1993). America's growing debt. Alexandria,      Virginia: Close Up Publishing.

 

  Provides background on the deficit and debt and what its   effects are.  Depicts the different areas of spending and     how they contribute to the debt.  Gives good information   on the increasing cost of entitlements and solutions to    it.

 

Weighing the basics of a balanced budget. (1995, February   28). USA Today Sec. A, p. 5.

 

  Is a short question and answer article that talks about    many aspects of  a balanced budget.