Why We Need A Federal Balanced Budget Amendment
by Ron Cline - December 2011
"The only way to get Congress to balance the budget is to give them no choice. The only way to keep them out of the cookie jar is to give them no choice .... whether it's balanced budget acts or pay as you go legislation ... it's the only thing. IF YOU DON'T TIE OUR HANDS, WE'LL KEEP STEALING."
-- Rep. Tom Perriello (D-VA)
March 16, 2010
The reasons we need a federal balanced budget amendment are many. In this article, I'll attempt to cover the ones I believe are most important so you'll be informed and ready to talk about the subject with family and friends convincingly. Let's get started with a little history ...
The federal government has not had a balanced budget since 1969. Every year the government spends more than it takes in adds to the national debt.
Why is that bad?
The current national debt recently topped 15 Trillion dollars. The portion on the debt that we pay interest on has increased over 50% in the past 18 months alone.
The United States Government Accountability Office (GAO) says that a rising national debt, particularly when viewed as a percentage of a nation's GDP, is a big long-term problem.
You see, the more debt a country holds, the less money it's able to put away in savings and reinvest in the nation's economy. In the United States, in particular, the Social Security, Medicare and Medicaid savings accounts are going to be hit hard by the retirement of the Baby Boomers. The government will no longer be able to tap into these accounts to pay for other federal programs. I would contend they shouldn't be doing that anyway, but that's another discussion.
The Government Accountability Office warns that federal borrowing to pay off the deficit will inevitably lead to higher interest rates, affecting the ability of citizens to buy homes and take out loans.
And that could lead to a broader economic slowdown, or even recession [source: GAO].
And the GAO's not alone. According to the Congressional Budget Office:
A growing portion of people's savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that "crowding out" of investment would lead to lower output and incomes than would otherwise occur. [Emphasis, mine.] In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.
Some Say Congress has done such a good job, a Constitutional Amendment is not needed.
You would have to be living on Mars to believe this.
We currently have a deficit of over $15 trillion and the President has requested and received an increase in the debt ceiling that will create a deficit of over $16 trillion as of January 2012.
So clearly Congress is not doing a good job of controlling the deficit. In fact, the deficit is now greater than our annual gross national product; a situation that leaves us comparable to Greece, Italy, and Spain in terms of the magnitude of our debt.
Rather than asserting that we do not need a balanced budget amendment, it is much more accurate to say that we desperately need a balanced budget amendment.
A study by Laurence Ball of Johns Hopkins University and N. Gregory Mankiw of Harvard University shows that Gross Domestic Product (GDP) in the United States would be three to six percent higher if our government operated with a balanced budget.
Martin Feldstein, President of National Bureau of Economic Research, has calculated that if the United States had balanced its budget each year since 1980, the national debt today would be only 10 percent of GDP, rather than a level that exceeds the value of the nation's annual economic output. Deficit spending clearly has an impact on our nation's economic growth and output.
Our credit rating, our economic standing in the world, and our national security have all been compromised as a result of our profligate spending.
But our elite political "ruling" class repeatedly refuses to make the tough decisions needed to correct the situation. And they seem to believe "kicking the can" down the road can go on forever. But this simply isn't true.
Take the circumstances behind our recent downgrade as a simple math "for-instance":
- U.S. Tax revenue: $2,170,000,000,000
- Federal budget: $3,820,000,000,000
- New debt: $ 1,650,000,000,000
- National debt: $14,271,000,000,000
- Recent budget cuts: $ 38,500,000,000
Now let's remove 8 zeros and pretend it's a household budget:
- Annual family income: $21,700
- Money the family spent: $38,200
- New debt on the credit card: $16,500
- Outstanding balance on the credit card: $142,710!
- Total budget cuts: $385
If your family finances were in this situation, do YOU know any bank that would continue to lend you money? So why are we continuing to allow our politicians to borrow money in our name?
Every child born as of July 2011 already owes more than $46,000 to our creditors.
We need a Balanced Budget Amendment to force Congress and the President to stop borrowing from our children and grandchildren.
Deficit spending artificially increases the demand for more government spending.
With deficit spending, the government can provide a dollar's worth of a program, and charge the taxpayers only 80 cents for the program. The program seems to be a good value for the price, but the true cost is hidden, passed along to future generations.
Economists calculate that reducing the deficit will stabilize interest rates.
Stable interest rates are achieved through price stability. Price stability can be defined as an economic environment in which people can make plans and contracts without worrying about inflation.
Interest rates are a good indicator of expectations about future inflation because most long-term shifts in the level of interest rates are due to changes in the market's expectations about future inflation.
What does a Balanced Federal Budget mean for your family? ...
- More jobs will be created. A balanced budget will lead to more investment by businesses in plants and equipment, increasing productivity and creating millions of new jobs in the twenty-first century.
- Balancing the federal budget will stop adding to the national debt, and stop rising interest payments. Interest payments on the debt have risen dramatically, eating up a larger and larger portion of our money. The funds necessary to pay interest on the national debt are funds that cannot be used for other programs, such as education or national defense.
- A Balanced Budget Amendment will make it almost impossible for your politicians to continue ripping you off. During the 18th and 19th centuries, our nation's leaders were more fiscally responsible. The net national debt accumulated between 1787 and 1900 was $900 million. That amount is less than Congress now borrows in less than a day!
It's clear we need our national leaders to return to the fiscal responsibility of our Founding Fathers. Government leaders have been unable or unwilling to balance the federal budget, always armed with a smorgasbord of excuses for running up deficits.
So, given their dismal record of self-control, we'll have to administer the Antabuse for them. Vote for politicians who will give us a Balanced Budget Amendment to force the President and Congress to stop spending money they (WE!) don't have.