Balanced Budget Amendment

George Will has come out again in support of a balanced budget amendment (BBA).  In fact, George thinks it should be job one for 2018:

We will discover that point [when debt influences growth]  the hard way, unless Congress promptly sends to the states for prompt ratification a constitutional amendment requiring balanced budgets. [Emphasis added]

He also has a explicit suggestion from Glenn Hubbard and Tim Kane on what it should be.  Hubbard and Kane’s proposal

would limit each year’s total spending to the median annual revenue of the previous seven years, allowing temporary deficits to be authorized in emergencies by congressional supermajorities.

We have lived under balanced budgets at the state level and found them particularly vexing because most spending is committed when the budget shortfall shows up and then you must cut where available.  It is not a system that leads to good decisions.  In addition, or perhaps related to the first problem, there are accounting problems.  In the states an obvious problem is pensions.  The WSJ highlights New Jersey recently.  New Jersey has a new governor, Democrat Phil Murphy.

As he takes office later this month, Mr. Murphy must confront the state’s biggest problem—a pension system that is about $90 billion short of what it needs to pay future benefits.

The federal government’s obvious accounting problem is entitlements.

We like the idea of a BBA but the problem of writing the amendment, bad budgeting decisions, and the accounting problem lead us to oppose a BBA.  The federal budget is such a disaster, however, we are willing to consider that the current circumstances are worse than a BBA.

Let’s assume that the BBA George suggests has passed by June 2018 and there are no supermajorities to substantially raise taxes.  We are already in fiscal 2018 so fiscal 2019 would be the first year it applies to.  FY 2019 has expected spending of $3.93 trillion.  The spending limit is trickier because it would seem reasonable to limit to actual data.  If so the limit would be $2.775 trillion.  If we include estimated years then the limit would be $3.021 trillion.  So there would be a need for cuts and tax increases from somewhere between just under a trillion dollars to $1.2 trillion.

Sidebar: We don’t see a solution in writing the amendment by making it effective in say, 2030.  Each party is aware of the problem.  There is little interest in fixing the problem as the last two presidential elections have shown.  End sidebar.

Neither party would want to pass such rule.  Spending GOP capital on a failure is a bad idea when they might do something useful in 2018.  We know that politicians always wimp out when the “out” years come.  That is they promise to make cuts later and never do.  Reforming entitlements gets harder every year.  We expect a disaster but see the BBA as an even bigger disaster.  Sorry George.

 

 

 

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