Malcolm Rivera
The proposed constitutional balanced budget amendment in the US has been a topic of debate for decades. The amendment would require the federal budget to be balanced every year, regardless of the economic climate. While some argue that this would provide a moral and legal framework for governance, others highlight the potential risks and negative consequences for specific programs, including Social Security. The amendment could make it unconstitutional for Social Security to use its reserves to pay benefits, threatening economic harm and potentially impacting the lives of millions of Americans.
| Characteristics | Values |
|---|---|
| Economic Impact | Significant economic harm, threatening job losses and recession |
| Social Security Impact | Prevent use of reserves, unconstitutional for Social Security to pay benefits, impede reforms |
| Federal Deposit Insurance Impact | Unconstitutional for FDIC to use assets for deposit insurance, could cause bank runs and deepen recession |
| Medicare and Medicaid Impact | Force cuts to Medicare and Medicaid, prevent use of Medicare trust fund reserves |
| Tax Impact | Enable significant new tax cuts, favour wealthy individuals and corporations over low- and middle-income families |
| Voting Impact | Alter Congressional voting procedures, require supermajority votes to raise debt limit or waive balanced budget requirement |
| State and Local Government Impact | Prevent federal government from following normal practices of state and local governments |
| Accountability | Leave hard decisions to future Congresses, provide framework for fiscal irresponsibility |
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What You'll Learn
Social Security's ability to use reserves to pay benefits
The proposed constitutional balanced budget amendment would require that total government expenditures in any year – including expenditures for Social Security benefits – do not exceed total revenues collected in the same year. This includes revenues from Social Security payroll taxes. As a result, even though the Social Security trust funds have accumulated large balances, drawing down any part of those balances would mean the trust funds were spending more in benefits in those years than they were receiving in taxes. This would result in impermissible deficit spending.
The Social Security trust fund has built up reserves in the form of Treasury securities backed by the full faith and credit of the United States. These reserves are intended to be used to help pay benefits for retired "baby boomers" in the late 2020s and early 2030s. However, under the balanced budget amendment, it would be unconstitutional for Social Security to use these savings to pay promised benefits.
The balanced budget amendment could also make it difficult to respond to economic downturns. Normally, the federal government can run a surplus one year and then use those savings to help balance the budget or fulfill legal guarantees during a downturn. However, under the amendment, saving for the future would be nearly pointless. This could lead to significant economic harm and job losses.
There are also concerns that the balanced budget amendment would favor the wealthy over middle- and lower-income Americans. By making it harder to reduce tax subsidies than to cut programs, the amendment could lead to massive new tax cuts that primarily benefit the affluent.
Some have argued that the balanced budget amendment would not harm Social Security and that proposals to exclude Social Security from the amendment are unnecessary. However, others worry that by making Social Security a constitutional issue, the amendment may impede reforms to the Social Security System that would protect future benefits.
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Increased risk of recession
The proposed constitutional balanced budget amendment could increase the risk of recession. By requiring a balanced budget every year, regardless of the state of the economy, the amendment could tip weak economies into recession and make recessions longer and deeper, resulting in significant job losses.
The amendment would prevent the federal government from borrowing to finance infrastructure or other investments to boost future economic growth. It would also make it difficult to raise the debt limit, requiring a three-fifths vote in both the House and the Senate, which could lead to a federal government default.
Additionally, the amendment could make it unconstitutional for the Federal Deposit Insurance Corporation (FDIC) to use its assets to pay deposit insurance, as it would constitute ""deficit spending." This could cause panicked depositors to make runs on banks, potentially turning a recession into a depression, as seen in the historical example from 1929 to 1933.
The requirement for a balanced budget each year could also lead to periodic mid-year crises when budgets fall out of balance due to factors such as slower-than-expected economic growth. Congress and the President may struggle to agree on budget cuts of the required magnitude to restore balance, further exacerbating economic instability and increasing the risk of recession.
Furthermore, the amendment could favor the wealthy over middle- and lower-income Americans. By making it harder to reduce tax subsidies than to cut programs, the amendment could lead to significant new tax cuts favoring affluent individuals and corporations, while reducing government programs that benefit low- and middle-income families.
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Difficulty in raising the debt limit
Most versions of the proposed constitutional amendment would make it harder to raise the debt limit by requiring a three-fifths vote in both the House and the Senate. This is a significant concern as Congress has often struggled to raise the debt limit even with a simple majority vote. In recent years, a substantial number of debt limit increases enacted by Congress have failed to receive a three-fifths vote in both houses.
The requirement for a supermajority to raise the debt ceiling heightens the risk of a federal government default, which would increase interest costs and damage the country's creditworthiness. This scenario almost played out in 1994 when Congress refused to increase the legal ceiling on the national debt, and a default on U.S. government securities seemed inevitable.
The balanced budget amendment would also restrict the ability of the Treasury to borrow funds to avert a financial crisis. For example, during the 2008 financial crisis, the Treasury borrowed an additional $300 billion and deposited the funds in the Federal Reserve to enhance its ability to promise liquidity to the financial system. However, most versions of the amendment would have barred such increases in borrowing.
The amendment's requirement for a balanced budget each year could lead to periodic mid-year crises. Budgets that are balanced at the start of a fiscal year can fall out of balance due to factors like slower-than-expected economic growth or natural disasters. In such cases, Congress and the President may struggle to agree on budget cuts to restore balance, and they may be unable to secure the three-fifths majority needed to raise the debt limit. This could result in the President or the courts taking unilateral action, undermining the checks and balances of the system.
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Favouring the wealthy over lower-income Americans
The proposed constitutional balanced budget amendment has been criticised for favouring the wealthy over lower-income Americans. This is due to a number of factors, including the amendment's potential impact on tax subsidies and government programs, as well as its effect on the Social Security system.
Firstly, the amendment makes it more difficult to reduce tax subsidies than to cut programs, which tends to benefit the wealthy. Wealthy individuals and large corporations receive most of their government benefits through tax subsidies, while low- and middle-income families rely more on government programs. By making it harder to reduce tax subsidies, the amendment effectively preserves benefits for the affluent while putting programs for lower-income Americans at risk.
Secondly, the amendment could lead to significant new tax cuts that favour the wealthy. Most sponsors of the amendment support making permanent the tax cuts approved by Congress and signed into law by President Trump in 2017, which included cuts for the wealthiest Americans and profitable corporations. These tax cuts would result in increased deficits, yet the amendment would make it nearly impossible to roll back these cuts or increase taxes due to the required supermajority vote in both chambers of Congress.
Additionally, the amendment could harm lower-income Americans by undermining the Social Security system. Social Security is designed to build up reserves to pay benefits for retired "baby boomers" in the late 2020s and early 2030s. However, under the amendment, it would be unconstitutional for Social Security to use these reserves, resulting in potential cuts to Social Security checks. This could disproportionately affect the elderly poor, as the Senate has shown a tendency to cut benefits for this demographic while preserving benefits for the wealthy.
Furthermore, the amendment's requirement to balance the budget every year could lead to periodic mid-year crises and make recessions more frequent and severe. During recessions, automatic stabilizers kick in, helping to mitigate the harm to purchasing power and preserve jobs. However, the amendment would suspend these stabilizers, requiring spending cuts or tax increases that could disproportionately impact lower-income Americans.
In conclusion, the proposed constitutional balanced budget amendment has been criticised for favouring the wealthy over lower-income Americans by prioritising tax subsidies for the affluent, enabling significant new tax cuts, undermining Social Security, and potentially exacerbating economic instability. These factors could collectively result in significant harm to lower-income Americans.
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Impeding Social Security reforms
The proposed constitutional balanced budget amendment could impede social security reforms in several ways. Firstly, it could make it unconstitutional for the Social Security Administration to use its reserves to pay benefits. The Social Security trust fund has built up reserves in the form of Treasury securities to help pay benefits for retired "baby boomers" in the late 2020s and early 2030s. However, under the balanced budget amendment, it may be unconstitutional for Social Security to use these savings, resulting in a funding crisis.
Secondly, the amendment could hinder the ability to raise the debt limit. Most versions of the proposed amendment require a three-fifths vote in both the House and Senate to raise the debt ceiling, which is already a challenging task for Congress. This could heighten the risk of a federal government default, increasing interest costs and damaging the US economy.
Thirdly, the amendment could favour the wealthy over middle- and lower-income Americans. By making it harder to reduce tax subsidies than to cut programs, the amendment may favour the affluent at the expense of Americans who rely on government programs for their benefits. Additionally, it could pave the way for significant new tax cuts, further benefiting wealthy individuals and large corporations.
Finally, the amendment may impede much-needed reforms to the Social Security System. By making Social Security a constitutional issue, it may become more difficult to implement changes that protect future benefits. For example, the amendment could undercut the central achievements of the 1983 Social Security reforms, such as the ability to use the Social Security trust fund surpluses to help pay for the baby boomers' retirement.
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Frequently asked questions
The proposed constitutional balanced budget amendment is a change to the US Constitution that would require the federal budget to be balanced every year, regardless of the state of the economy. This would mean that total government expenditures in a given year could not exceed total revenues collected in that same year.
The balanced budget amendment could harm Social Security by preventing the use of reserves in the Social Security trust fund. Social Security has built up reserves of $2.9 trillion in Treasury securities to help pay benefits for retired "baby boomers" in the late 2020s and early 2030s. However, under the amendment, it would be unconstitutional for Social Security to use these savings to pay promised benefits, as it would be considered deficit spending.
Yes, there are several other concerns with the proposed amendment. Firstly, it could make it difficult to raise the debt limit, increasing the risk of a federal government default. Secondly, it could favour the wealthy over middle- and lower-income Americans by making it harder to reduce tax subsidies than to cut programs. Thirdly, it could lead to periodic mid-year crises when budgets fall out of balance due to factors such as slower-than-expected economic growth. Finally, it could impede much-needed reforms to the Social Security System.
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