The Bridge to a Balanced Budget?

The lead opposition witness in the 1992 Senate hearings on the question of a constitutional amendment, Professor Laurence Tribe of Harvard, said: "Despite the misgivings I expressed on this score a decade ago, I no longer think that a balanced-budget amendment is, at a conceptual level, an ill-suited kind of provision to include in the Constitution. . . . The Jeffersonian notion that today's populace should not be able to burden future generations with excessive debt does seem to be the kind of fundamental value that is worthy of enshrinement in the Constitution. In a sense, it represents a structural protection for the rights of our children and grandchildren."

What Congress will vote on soon is not the absolute prohibition on borrowing that Jefferson advocated, but a limitation so that borrowing can only take place if there is a 60 percent majority in both houses favoring it.

Why do we need this? There are five fundamental reasons:

1. Deficits are doing substantial harm to the economy today.

The bipartisan Concord Coalition, headed by former Senators Paul Tsongas (D-Mass.) and Warren Rudman (R-N.H.), did a study that concluded that because of the deficits of the past two decades the average American family is losing $15,000 a year in income. Economists agree on very little, but all economists agree that the major cause of the trade deficit that continues to plague our nation is our annual deficits. On top of these ills, interest rates are higher because of the deficits, which eat into our national savings.

2. As our financial obligations to others grow, we diminish our independence as a nation.

When our situation was far less precarious than it is today, a Treasury official came to me -- I served in the House then -- and argued that if we failed to approve an arms sale to the Saudis, they might stop buying our bonds. A limited-circulation publication that is highly regarded, Grant's Interest Rate Observer, notes in its December 6, 1996, issue that foreign holdings of Treasury notes went from $496 billion on November 29, 1995, to $610 billion a year later. And that is only a fraction of the foreign holdings of our debt. Though it was an anemic defense of a bad habit, the old argument for deficits, "We owe it to ourselves," contained some truth. But today it is clearly not valid. The same issue of Grant's discussed another small indication of future trouble: the unusual phenomenon of banks' being able to borrow money at lower rates than the U.S. government.

3. Our tax dollars are being wasted on interest.

For fiscal year 1996 the nation's gross interest expenditure was $344 billion -- eleven times our educational spending, twenty-two times as much as foreign economic assistance, and twice as much as our poverty programs. This year it will be worse, reaching approximately $1 billion a day for interest. Every economic study of this country asserts that we should invest more in education, yet federal expenditure in that area has slipped from nine percent of the budget in fiscal year 1949 to less than 1.5 percent today. Interest is crowding out other needed spending. While our total tax burden, as a percentage of income, is lower than that in almost all industrialized Western nations, dissatisfaction levels expressed in the polls are higher in the United States than in other nations. One reason: with the exception of Israel, no other Western nation spends as high a percentage of its government budget on interest and defense -- things that do not directly benefit most citizens -- as we do.

4. "We can balance the budget without a constitutional amendment" is an old saw that is being disproved regularly.

A few years ago we were going to do it legislatively through the Gramm-Rudman bill. It worked for about two years -- until the tough decisions had to be made. Those of us in public office don't like to make unpopular decisions. The current commitment of both parties to balance the budget by the year 2002 has one huge loophole: the tough decisions are postponed until 2000 and 2001. They won't be made. Without a constitutional amendment we will not face up to the need for significant changes in politically sensitive spending and the need for additional revenue. We've had deficits for twenty-eight years in a row. Anyone who doubts the popularity of deficits should reread the calls by both you and Bob Dole for tax cuts in the last election. They made no economic sense, only political sense.

5. Without a constitutional amendment we are headed toward what economists call "monetizing the debt" -- printing worthless money.

In his classic Wealth of Nations, written in 1776, Adam Smith stated that the history of nations is that they pile up more and more debt and then debase the currency. No one who seriously looks at our record and current projections can believe we will avoid that fate without us taking some tough medicine, and we will not take it unless forced to by a constitutional amendment.

Is there a guarantee that a constitutional amendment will work? No, but Presidents and House and Senate members take one oath: to uphold the Constitution. It is revered, as it should be. A constitutional amendment will give office-holders the political cover and courage to do what needs to be done. We have demonstrated that without it we cannot avoid the path to economic and political chaos.

We need your support, Mr./Ms. President.

--Paul Simon, former U.S. Senator (D-Illinois), is now director of the Public Policy Institute at Southern Illinois University at Carbondale.

The case for a balanced budget rests on a fallacious analogy. Proponents argue that just as families and state governments balance their budgets, so must the federal government. But think about it: families with mortgages do not balance their budgets. They borrow their way to a better future. Nor do state governments balance their budgets. States finance their borrowing -- for roads and other public improvements -- through capital budgets, which are kept separate from operating budgets.

If proponents urged the federal government to adopt a capital budget, their case would at least be intellectually honest. But they don't, and it isn't. Thus they apply to the federal government a standard that would make families homeless and state governments insolvent.

But suppose the Constitution mandated a balanced budget. What practical effects would follow?

It's fortunate that the proposed amendment was not in place before the Second World War. As one Congressional opponent of the idea has noted, the Battle of Midway, perhaps the most decisive battle of the Pacific War, would have been lost if several aircraft carriers built by deficit spending had not been on the scene. Any amendment that would have resulted in Midway as a Japanese victory does not pass the test of history.

If the amendment had been in place in the 1980s the country would have had to forgo the doubling of the defense budget or pay for it, either with a stiff tax increase or by painful cuts in discretionary domestic spending -- by the elimination of the tax credit for interest paid on home mortgages, for example. Conservatives, the major proponents of the amendment, credit the Reagan defense build-up with the destruction of Soviet communism. They credit the Reagan tax cuts with launching the economic boom that made it "morning in America." Neither of these things could have occurred with the amendment in place.

Borrowing from the future to break the Soviet Union was hardly unfair to future taxpayers; it was an investment in their security. They will be able to take for granted a world in which no Soviet missiles are targeted on America. The Reagan tax cuts may have swelled the deficit, but they also brought the economy out of the recession of 1982, the worst since the Great Depression. The government went into the red so that families and businesses could go into the black. Is that a bad use of government spending? Hardly. And, tellingly, the tax cuts were enacted in 1981, before the recession took hold. Proponents claim that during recessions the amendment would allow for deficit spending, albeit only if super-majorities in Congress agree. But the stimulus that led to recovery in 1983 was voted in 1981, when the amendment would not have permitted it.

Mr./Ms. President, this amendment would write Herbert Hoover's economics into the Constitution. It would force the government to raise taxes or cut spending if the economy seemed to be moving into recession -- just when it would need the tonic of tax cuts and spending increases to spark a recovery.

Proponents say that the interest paid to finance the national debt will soon eat up nearly all federal revenue. But a prolonged recession would swell the deficit as well, and with, at best, weak and tardy counter-cyclical measures from the government, the amendment would prolong recessions. So it is not as if your choice is deficit versus no deficit. It is the economics of Keynes versus the economics of Hoover. It is economic stability versus economic free-fall.

Party Lines

Option	Democrats	Republicans	Independents	Libertarians	Other	Unregistered
Option A	7%	17%	7%	11%	1%	8%
Option B	24%	4%	9%	0%	3%	10%