Blog Posts > Fiscal Policies Like a Balanced Budget Amendment Have No Place in U.S. Constitution
February 26, 2016

Fiscal Policies Like a Balanced Budget Amendment Have No Place in U.S. Constitution

The House Judiciary Committee is likely to take up a dangerous resolution – House Concurrent Resolution 36 – that calls for a constitutional convention of states to propose a balance budget amendment (BBA) to the U.S. Constitution. As I discussed earlier, there are no established ground rules for how this would transpire and it could open up the Constitution to radical and harmful changes.

Aside from the inherent risk in calling a convention,  the proposed BBA amendment language in HCR 36 is fraught with technical problems. For example, it states:

Applying for an Article V Amendments Convention to Propose a Constitutional Amendment permitting a calling of a convention of the states limited to proposing an amendment to the Constitution of the United States requiring that in the absence of a national emergency the total of all federal appropriations made by the Congress for any fiscal year may not exceed the total of all estimated federal revenues for that fiscal year together with any related and appropriate fiscal restraints.

Requiring that revenues offset federal spending in any fiscal year collected in that same year would drastically undercut the design of programs like Social Security and would leave serious questions regarding enforcement of that requirement. As federal budget expert Richard Kogan noted in 2014: 

Currently, Social Security holds $2.8 trillion in Treasury securities. But under the balanced budget amendment, it would essentially be unconstitutional for Social Security to draw down these savings to pay promised benefits.  Instead, benefits would have to be cut, because all spending would have to be covered by tax revenues collected during that same year. More precisely, Social Security would be allowed to use its accumulated Treasury securities to help pay benefits only if the rest of the federal budget ran an offsetting surplus.

The same problem would also occur with billions of federal funds held in trusts and reserves, such as military retirement and civil service retirement system trust funds, the Abandon Mine Lands Fund, and funds held by the Pension Benefit Guarantee Corporation (PBGC) and the Federal Deposit Insurance Corporation (FDIC).

A balanced budget requirement in the U.S. Constitution would also trump other government guarantees and promises written into law, according to Kogan. This includes interest paid on the debt and guaranteed claims on bank deposits, loan defaults, or nuclear accidents. And it also means that program benefits held in reserves and insurance trusts funds for Medicaid, Medicare, unemployment benefits and veterans’ benefits would not count as revenues but would count as spending under a balanced budget requirement.

There is also a major problem with enforcement of a balanced budget amendment. For example, what happens when the budget is out of balance? Who has the power to impose balance? The president? If the president has unilateral power, can he impose spending cuts, raise taxes or reduce tax expenditures?

What is the role of the Supreme Court? Would the Supreme Court have legal standing to challenge Congress and the President to pass a balanced budget? Would the BBA just require the ‘adoption’ of a balanced budget and ignore any deficits that occur? If so, would this provide big incentives for adopting rosy assumptions for revenue estimates or when enacting legislation?

For these reasons and more, a BBA had some serious design flaws. It does not allow saved-up money to be spent as it defines “balance” as spending no more in a year than the revenues collected in that year. Imagine if if a family had to meet that standard. It would prohibit them from borrowing for college, health emergencies or to buy a home. For example, a frugal family that saved money into a college savings accounts (529) would not be able to use these savings under the BBA proposal because it would only be able to use the funds saved in that year.

Not only is a BBA fundamentally undemocratic,  it could lead to the Supreme Court having to adjudicate fiscal policy. This is precisely why the Constitution does not include fiscal policies; opening up the Constitution to insert fiscal policies would be unwise and dangerous.

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