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· November 26, 2013

IO’s testimony in opposition to calls for a federal balanced budget amendment

Earlier this month, IO Communication’s Director Dale Butland submitted testimony to committees in both the Ohio House and Senate in regards to resolutions calling for a federal balanced budget amendment. Below is the text of that testimony opposing both Senate Joint Resolution 9 and its companion piece of legislation, House Joint Resolution 7. Included at the end of the testimony is a note from Mr. Butland including further thoughts on why lawmakers in Ohio are calling for a federal balanced budget amendment at this point in time.                 

TESTIMONY OF DALE BUTLAND – INNOVATION OHIO

My name is Dale Butland and I am communications director for Innovation Ohio, a progressive think tank headquartered in Columbus.

I thank the Committee for this opportunity to comment on SJR 5.  This resolution, if passed by both houses of the General Assembly, would put Ohio on record in calling for a federal constitutional convention for the purpose of passing a balanced budget amendment (hereafter, “BBA”) to the U.S. Constitution.

In the view of Innovation Ohio, a BBA is a terrible idea.

A Constitutional Convention is problematical

First, and quite apart from the merits of a BBA itself, calling a constitutional convention is rife with danger and uncertainty.  Contrary to the soothing assurances of those who back SJR 5, there is no guarantee that such a convention could be confined or directed to concern itself only with adopting a BBA.  Indeed, many constitutional scholars warn of the potential for a “runaway convention” in which delegates would be free to modify the Constitution in any way they see fit, including, for example, repealing or amending all or some of the Bill of Rights.  

In truth, no one can say with certainty what would happen; there has only been one such convention in U.S. history and it occurred in 1787.   And it’s worth remembering that that convention was originally called to consider a narrow range of amendments to the existing Articles of Confederation.  Instead, delegates junked the Articles and wrote a whole new document.  In other words, the only precedent we have suggests not that a constitutional convention might exceed its mandate, but that it will.  In any event, given the uncertainty that surrounds what could or might happen in a constitutional convention, is it prudent for Ohio to advocate rolling the dice?

Nor is it clear why BBA supporters insist that a constitutional convention is necessary in order to pass this particular amendment. All 27 existing amendments to the Constitution –including the first ten (aka, “the Bill of Rights”)—were passed by a two-thirds vote in both Houses of Congress and then ratified by three-quarters of the states.  Why does the BBA alone merit special treatment?

Finally, we should not forget that the main reason the Constitution commands such enormous respect across America’s ideological spectrum is that it is the repository of our nation’s basic political principles.  It has never been —and should not become —a handbook for the day-to-day operations of government.  Is it really wise to begin enshrining policy preferences in our nation’s founding document?  Yet a BBA would take the nation precisely in that direction.

Bad Economics

Leaving aside the potential mischief that could come from a constitutional convention, a BBA itself is both bad policy and bad economics.   Perhaps the chief fiscal danger of a BBA is that it could force the federal government to make a pronounced economic slump even worse.

In a recession, revenues fall because incomes decline.  When this occurs, so-called “automatic stabilizers” (like food stamps and unemployment benefits) kick in so recessions don’t become depressions.  Without such stabilizers, the Great Recession of 2008-09 almost certainly would have become another Great Depression.

The reason is obvious.  When consumers aren’t spending and businesses aren’t spending, government is the only source of spending left. If the government stopped spending too —or was forced to dramatically raise taxes in order to keep revenues constant — (either or both of which would be required by a BBA during a downturn), an economic death spiral would ensue.

Most mainstream economists recognize that the right time to cut spending is when the national economy is doing well, not when it is struggling.   But a BBA would not allow for such judgments; indeed, it would require that spending be slashed and/or taxes be raised at exactly the wrong time.

Bad for Ohio

Here in Ohio —which has the second highest number of auto jobs in the nation — it is worth noting that had a BBA been in effect during the Great Recession, no auto rescue plan would have been possible.  Without the rescue, not only would GM and Chrysler have gone under, but they likely would have taken the entire auto industry supply chain down with them.  And that, in turn, would have caused Ford, Honda and other auto makers which did not receive rescue money to close their doors as well.

More recently, of course, Gov. Kasich would not have been able to expand Medicaid to cover 275,000 of Ohio’s working poor (at no cost to the state for the next three years) if a BBA were now in effect.  While that might please a minority of the General Assembly, it’s difficult to see how Gov. Kasich could consider it to be good news since he has pushed so hard for Medicaid expansion.

Beyond this, mandating a balanced budget right now would require draconian spending cuts in Social Security and Medicare benefits and dozens of other programs that real people depend upon —and probably large tax increases as well.

Those who advocate for a BBA should at the very least be willing to identify precisely which programs they are willing to cut and which taxes they are willing to raise —and by how much —in order to achieve what they say they want.  It is easy to propose an abstraction.  It is far more difficult (and politically risky) to identify and quantify the concrete pain you are willing to inflict.

Evasion and Enforcement

Even if a BBA were constitutionally mandated, attempts at evasion are virtually certain.  Most states and many local governments already have balanced budget requirements.  And the result has been a significant increase in spending by so-called “independent authorities.”  In 2007, the nation had 37,381 “special districts” —up 27% from just 20 years earlier.

At the Federal level, Presidents and Congresses would almost certainly seek to evade a constitutional mandate by putting ever-more spending “off budget” —as they’ve already done with Social Security — in order to make the deficit look smaller.  Or they could create entirely new “off-budget” entities such as Fannie Mae and Freddie Mac.  Or they could dramatically increase the number of federal “loan guarantees.”  Other creative ploys are limited only by lawmakers’ imaginations.

And the only way these evasions could be stopped is by going to court and embroiling unelected federal judges in the budget debate.  With each new evasion, one party or the other would be tempted to file suit in order to “prove” that the Constitution has been violated.  Do we really want unelected federal judges making fundamentally political decisions about spending?  It seems especially odd that conservatives —who so often rail against judicial policy-making— should now be inviting it.

And even when evasions don’t go to court, won’t politicians’ efforts to manipulate or avoid the BBA only deepen public cynicism?  After all, with a BBA in force, such machinations would no longer be seen as routine partisan maneuvering, but as assaults on the Constitution itself.

Unnecessary

BBA supporters typically make two main arguments:  first, that it is the only way to rein in out-of-control federal spending and achieve a balanced budget — and second, that today’s growing federal debt and deficits pose an existential economic threat to our country.

The first proposition is empirically and manifestly false.   Between 1998 and 2001, the United States not only had balanced federal budget, but actually ran a surplus of some $236 billion.  And this, of course, was achieved without a BBA.  Since he was Chairman of the U.S. House Budget Committee at the time —and frequently references his role in securing those surpluses —it is difficult to understand why Gov. Kasich now insists that balance can only be achieved through a BBA.

But if a BBA wasn’t necessary to achieve a balanced budget in the ‘90’s, two other conditions were necessary.  The first was job creation.  The 22 million net new jobs that were created during the Clinton years allowed tax revenues to rise and counter-cyclical spending to fall.  The second ingredient was elected government officials who were willing to make some tough decisions on spending and taxes.

Job creation in the wake of the Great Recession has been pitifully slow.  So instead of wasting time on a BBA, perhaps our elected officials should be championing a serious job creation program that will put people back to work, increase consumer spending, grow the economy, and decrease federal outlays on income maintenance programs.

And instead of  peddling gimmicks designed to relieve them of their responsibility to cast difficult votes, perhaps our elected officials should start doing the jobs we elected them to do —much like their predecessors  in the late 1990’s did.

With respect to the alleged existential threat that is now being posed by runaway debt and deficit, it is important to recognize that while the national debt has indeed been rising (and is now up to $17 trillion) annual federal deficits are now actually falling.

In 2009 (at the height of the Great Recession), the yearly deficit hit an unprecedented $1.4 trillion.  But thanks to budget cuts (some of which resulted from the so-called “sequester”) and higher taxes on the wealthy achieved during the  so-called “fiscal cliff” negotiations at the end of last year, the deficit for FY2013 was just over $680 billion —the smallest imbalance since 2008 and less than half of what it was in 2009.

By 2018, the non-partisan Congressional Budget Office projects that the deficit will shrink to $475 billion, and possibly substantially less.  And since the economy will be growing between now and 2018, the deficit also will comprise an ever-lower percentage of our nation’s GDP.  If downward deficit trends persist and a growing economy allows us to achieve surpluses as we did in the 1990’s, we can begin to shrink not just deficits, but the national debt as well.

Conclusion

Given the improving deficit numbers —and in light of the many threats, economic and otherwise —inherent in a BBA, it is difficult to understand the urgency some apparently feel for passing such an amendment at this particular time.

But whether the motivation is nakedly political or the result of a sincerely held belief, a BBA brings to mind H.L. Mencken’s famous dictum that “there is always an easy solution to every human problem —neat, plausible, and wrong.”

Innovation Ohio respectfully recommends that the easy solution contained in SJR 5 be rejected by the Ohio House.

It is simplistic, unnecessary and dangerous.

It would be wrong for our state —and wrong for our country.

I thank the Committee for this opportunity to testify.

Note to readers: Since submitting this testimony, I have been asked by a number of people why I think the push for a balanced budget and  constitutional convention is occurring now —and is reportedly taking place in 19 different states.  It is a fair question.  And since I did not attempt to answer it in my written testimony, I offer my thoughts on that subject below in the event they may be of interest.     

Why Now?

In light of the many problems inherent in a BBA —and in light of the fact that balanced federal budgets were achieved in the recent past without such an amendment — it is reasonable to ask why the push for a BBA is taking place at this particular time and in so many different states all at once.

It’s possible, of course, that lots of politicians in lots of different states have all had a simultaneous and collective epiphany about the immediate need for a balanced federal budget and how to best achieve one.  But coincidences are as rare in politics as pandering and demagoguery are commonplace.

So a far more likely explanation is that the sudden push for a balanced budget amendment is mere grandstanding by politicians eager to improve their standing with the public.  After all, in the wake of the federal government shutdown and the continuing political gridlock in Washington, polls show that Congress’ approval rating has never been lower.  Indeed, a new Gallup poll released on November 12 found Congressional approval now stands at just 9%.

In such an environment, it is certainly plausible that elected officials, whether in Washington or Columbus, want the public to believe they’re actually doing something about a perceived problem.  But a BBA, of course, would not balance the budget —now or ever.  That can only be accomplished through elected officials making difficult decisions.

But what politician wants to propose cutting spending for popular programs like Social Security or Medicare?  What politician wants to propose increasing short-term spending to pay for a serious job creation program? What politician wants to propose a tax increase?  Yet these are exactly the kinds of things that have to happen, with or without a BBA.  All the push for a BBA does is buy politicians time by perpetuating the illusion that something is being done.

Cynics might also reasonably suspect that the current push for a BBA has been timed to improve the political fortunes of certain politicians who are facing re-election in 2014 or 2016 —or perhaps contemplating running for even higher offices than those they currently hold.  That motive might prove particularly compelling for high-profile politicians who have angered their party base by, say, expanding Medicaid —or changing their position on a controversial issue like same-sex marriage.   It would certainly not be the first time politicians sought to offset a “negative” by embracing a popular position on an unrelated issue.

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