Balanced Budget Amendments Are Not Always What They Seem

By :: July 13th, 2011

A constitutional amendment that would require a balanced federal budget has again gained favor, especially among Republicans. The proponents should be forced to answer an important question, “What is a budget?” 

Forty nine states have constitutions or strong legislative language requiring budgets to balance.  An unfortunate effect has been to push many state activities “off-budget”. There are independent authorities that run turnpikes, hospitals, etc. and a plethora of other off-budget accounts whose main purpose is to avoid balanced budget requirements.  It has made the typical state budget very hard to read and understand.

Some efforts to limit the reach of balanced budget rules seem more legitimate. Often, for instance, only operating budgets must be balanced, and jurisdictions may borrow to finance capital investment.  However, politicians then have an incentive to define almost any activity as being a capital investment.  It was said that during the financial crisis facing New York City in the 1970s even janitors’ salaries became capital investments.  After all, they did have something to do with buildings.

A federal balanced budget amendment has the added disadvantage of making it difficult to run a countercyclical policy or finance wars and other emergencies unless there are escape clauses.  But every escape clause creates another loophole.  In order to avoid certain budget rules in the late 1990s, the Congress declared the 2000 census to be an emergency, even though we have known since 1789 that we would have to have one.

It is ironic that a balanced budget amendment is being discussed just as House Republicans passed a budget that would not be balanced until the 2030s.  The president’s fiscal commission’s recommendations did not balance the budget until 2035.  As hard as it will be, it may be easier to put a balanced budget requirement in the constitution than actually to balance a real budget.