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Balanced Budget Amendment: Still Flawed, More Dangerous

Commentary
June 29, 2011By Juan Carlos Ordóñez

In deciding how best to address the nation’s deficit, Oregon’s congressional delegation should follow the responsible, independent trail blazed by Senator Mark Hatfield in 1995. Adhering to principle rather than partisan lines, Hatfield cast the deciding vote against a balanced budget amendment to the U.S. Constitution. Rather than resort to a “procedural gimmick,” Hatfield said, Congress should work hard to balance the budget responsibly.

Unfortunately, the balanced budget amendment has resurfaced. And the current version would inflict even greater harm on the American people than the one that Oregon’s legendary Senator stopped in its tracks 16 years ago.

As with the version Hatfield thankfully killed, the balanced budget amendment introduced this year by Senate Republicans requires that total spending in any fiscal year not exceed total receipts for that fiscal year.

This would sew into the Constitution an economic straitjacket that would leave our nation largely helpless in fighting recessions. Why? Because in a recession, consumers and businesses cut back their spending out of necessity or fear, stunting economic activity. The only entity with the ability to stimulate the economy is the federal government . . . unless a balanced budget shackles its ability to spend.

And because tax collections plummet during a recession, balancing the nation’s budget would require Congress to slash spending, raise taxes or both — just when the economy is weak. Deep spending cuts in a recession are the exact opposite of what good economic policy would advise. The result would be deeper and longer recessions, greater unemployment and more misery for the American people.

Recent experience demonstrates the importance of our government’s role during a recession. The 2009 federal Recovery Act put Oregonians and people all across the nation to work in private sector jobs fixing roads, weatherizing homes and providing medical care. It put money in the pockets of consumers in the form of tax credits and bigger unemployment insurance checks, helping families stay afloat and boosting local businesses.

The Recovery Act and the rest of the federal government’s aggressive fiscal and monetary policies “probably averted what could have been called Great Depression 2.0,” according to economists Alan S. Blinder and Mark Zandi. They estimated that without those policies the nation’s Gross Domestic Product would have been far lower and there would have been millions of fewer jobs in 2010.

If turning recessions into depressions weren’t bad enough, the current version of the balanced budget amendment also threatens to inflict extreme pain on middle-class and low-income Americans in the not-too-distant future.

The current bill contains two additional poisonous features. First, it would require a two-thirds majority vote to raise taxes, which would make it exceedingly difficult to raise revenue to balance the budget, leaving spending cuts as the only practical option.

Second, the bill would cap annual federal spending at 18 percent of the Gross Domestic Product starting in 2018 — an arbitrary level that would force draconian cuts to the programs that nurture the middle class and protect vulnerable Americans.

The amendment's chief sponsor admits that meeting the amendment's time frame would require raising the Social Security retirement age to 70. It would require slashing Medicare, Medicaid and the Supplemental Nutrition Assistance Program (formerly called food stamps). And it would require, by 2021, cutting 70 percent of non-security discretionary spending — the area of the federal budget that funds education, environmental protection, protection of the nation's food and water supply, medical research, and services for disadvantaged or abused children, frail elderly people and people with severe disabilities.

In other words, the result would be a manufactured disaster.

There are responsible ways to address the nation’s large deficits without inflicting such pain on America’s beleaguered middle class and those who have already been squeezed out of it.

The responsible approach begins by undoing a key driver of the increasing deficits: the Bush-era tax cuts. Simply letting those tax cuts — which have disproportionately benefited the nation’s wealthiest households — expire as scheduled by the end of 2012 would halt the rise in the deficit over the next decade. Congress should then build on the accomplishments of the Affordable Care Act to address the other primary deficit-driver, the spiraling costs of health care.

As Senator Hatfield observed 16 years ago, Congress already has the power to balance the budget. They just need to exercise that power and do so responsibly.