Eleanor Finch
The US Constitution tasks Congress, and more specifically, the House of Representatives with the power of the purse. The Appropriations Clause and the Statement and Accounts Clause in Article 1, Section 9, Clause 7 of the Constitution, outline the legislative duty of Congress to publish a regular statement and account of the receipts and expenditures of all public money. In recent years, there have been intensified efforts to secure a constitutional rule to require a balanced federal budget. A balanced budget amendment to the Constitution would require a balance between the projected receipts and expenditures of the government. While proponents argue that such an amendment would create strong political pressure to rein in deficits and impose accountability for irresponsible fiscal policy, opponents argue that it could limit the ability of future policymakers to use fiscal policy to respond to economic recessions and national emergencies.
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What You'll Learn
The Constitution and the federal budget process
Today, the budget process involves the President proposing annual budget guidelines, which are then considered and amended by House and Senate committees. The House and Senate then work to reconcile differences, and if they approve the final budget, the President signs the individual bills or the single bill encompassing the entire budget. If there is a deadlock, it can lead to a government shutdown.
There have been recent efforts to amend the Constitution to include a balanced budget amendment, which would require a balanced federal budget. Proponents argue that this would create strong political pressure to rein in deficits and hold officials accountable for irresponsible fiscal policy. However, opponents argue that it could limit the government's ability to respond to recessions and emergencies, and that it could lead to significant economic harm and job losses.
The federal budget is established through a variety of legislative actions, with some tax and spending legislation being permanent, some covering multi-year periods, and some decisions being made annually through appropriations bills. The 2010 Statutory Pay-As-You-Go (PAYGO) Act is an example of a legislative action that enforces budget discipline.
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The pros and cons of a balanced budget amendment
A balanced budget amendment to the US Constitution would require that federal spending not exceed federal receipts. The amendment would make it unconstitutional for the federal government to run annual budget deficits.
Pros
Proponents of a balanced budget amendment argue that it would protect future generations from debts accumulated by earlier generations. They argue that the Congress and President are unwilling or unable to rein in the debt through normal legislative procedures, and that only a constitutional constraint will be strong enough to rein in lawmakers' tendency to act in fiscally irresponsible ways. They also argue that respect for the Constitution will create strong political pressure to rein in deficits and impose needed accountability for irresponsible fiscal policy.
Cons
Opponents of a balanced budget amendment argue that it could limit the ability of future policymakers to use fiscal policy to counteract recessions or respond to national emergencies. They argue that the cause of fiscal imbalances is a lack of political will, not an inadequate process, and that a balanced budget amendment would fail to achieve its objectives. They also argue that the political pressure could lead to budget gimmicks that would meet the letter, but not the spirit, of the law.
In addition, a balanced budget amendment would threaten significant economic harm. By requiring a balanced budget every year, no matter the state of the economy, such an amendment would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses. It would also raise problems for the operation of Social Security and other vital federal programs.
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The impact on the economy
The impact of a balanced budget amendment on the economy is a highly debated topic. Some argue that it would be an unusual and economically dangerous way to address the nation's long-term fiscal problems, while others contend that it is necessary for controlling federal spending and providing long-term fiscal discipline.
Proponents of a balanced budget amendment argue that it would create strong political pressure to rein in deficits and impose accountability for irresponsible fiscal policies. They believe that few elected officials would be willing to present a budget that violates the Constitution, forcing opposing parties to compromise and pass legislation meeting the constitutional requirements. Additionally, they argue that future generations have a right to be protected from debts accumulated by earlier generations.
On the other hand, opponents argue that a balanced budget amendment could limit the ability of future policymakers to use fiscal policy to counteract recessions and respond to national emergencies effectively. They contend that requiring a balanced budget every year, regardless of the state of the economy, could tip weak economies into recession, making recessions longer and deeper and resulting in significant job losses. In addition, they argue that the cause of fiscal imbalances is a lack of political will rather than an inadequate process, and a balanced budget amendment would fail to achieve its objectives.
The impact of a balanced budget amendment on the economy has been studied by various organizations and experts. Macroeconomic Advisers, a private economic forecasting firm, concluded that if such an amendment had been in place for the fiscal year 2012, "the effect on the economy would be catastrophic." They predicted that it would have doubled the unemployment rate to 18% by causing an additional 15 million people to lose their jobs. Additionally, they stated that "recessions would be deeper and longer," and uncertainty would be cast over the economy, potentially hindering economic growth even during normal economic times.
Furthermore, a survey by the IGM Forum at the University of Chicago's Booth School of Business found that 99% of leading economists of all political persuasions disagreed with the proposition that a balanced budget requirement would help stabilize the economy. This included four Nobel Prize-winning economists.
While there are arguments for and against a balanced budget amendment, the consensus among economists is that strict annual balanced budget amendments can have harmful near-term economic effects. However, some countries, such as Germany, Italy, and Switzerland, have successfully implemented balanced budget amendments with provisions for exceptions during emergencies and recessions. These countries' experiences demonstrate that while a balanced budget amendment can provide fiscal discipline, it must be carefully designed to avoid exacerbating economic downturns.
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The impact on Social Security and other federal programs
The impact of a balanced budget amendment on Social Security and other federal programs is a cause for concern. Social Security, for example, would be unable to draw on the balances it has accumulated in previous years to pay benefits in a later year. Instead, it might be forced to cut benefits even with ample balances in its trust funds. This dynamic would also apply to the military retirement and civil service retirement programs.
Similarly, the Federal Deposit Insurance Corporation and the Pension Benefit Guaranty Corporation would be unable to respond quickly to bank or pension fund failures by using their assets to pay insurance deposits. They would be unable to do so without causing the budget to slip out of balance.
The requirement for a balanced budget every year, regardless of the state of the economy, could cause or worsen recessions. This would have a detrimental impact on federal programs, as recessions would be deeper and longer, and economic growth would be hampered. In turn, this would affect the ability of the federal government to fund its programs.
In addition, the requirement for a two-thirds vote of each House's total membership for a bill to increase revenue would discourage the use of tax increases to balance the budget, instead encouraging spending cuts. This could further impact the funding of federal programs.
Overall, a balanced budget amendment could have a significant negative impact on Social Security and other federal programs, reducing their funding and ability to respond to crises.
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The role of Congress and the President in the budget process
The Constitution gives Congress the power of the purse, which means it has the authority to tax and spend. In the early years of the nation, Congress controlled the budget process, and the federal budget was in surplus until 1850. The Constitution mandates that Congress plays a part in the federal budget, including spending and taxes. Article 1, Section 9, Clause 7 contains two clauses: The Appropriations Clause and the Statement and Accounts Clause. The former states that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law", while the latter states that "a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time".
The President also shares budget responsibilities with Congress. The President proposes annual budget guidelines, which are considered and amended by House and Senate committees. A group of House and Senate members then meets to work out differences between these appropriations bills. If the House and Senate approve the final budget, the President signs the individual bills, or the one bill that includes the entire budget. If not all the bills are signed by October 1, Congress can pass a continuing resolution until all the bills are passed.
Congress makes spending and tax decisions through a variety of legislative actions, and some tax and spending legislation is permanent. Other legislation covers multi-year periods, requiring periodic renewal, and many budget decisions are made year by year, through the enactment of annual appropriations bills. Congress has sometimes taken a different approach, establishing a “Congressional Budget” in statute as an alternative to the concurrent budget resolution, including setting new appropriations targets for discretionary programs.
Congress may propose an amendment to the Constitution whenever two-thirds of both houses of Congress deem it necessary. Alternatively, Congress must call for a constitutional convention for the purpose of proposing amendments on application of the legislatures of two-thirds of the states. A constitutional amendment must be ratified by the legislatures or conventions in three-fourths of the states.
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Frequently asked questions
A balanced budget amendment is a constitutional rule requiring that a state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Proponents of a balanced budget amendment argue that future generations have a right to be protected from debts accumulated by earlier generations. They also argue that it will create strong political pressure to rein in deficits and impose needed accountability for irresponsible fiscal policy.
Opponents of a balanced budget amendment argue that it could limit the ability of future policymakers to use fiscal policy to counteract recessions or respond to national emergencies. They also argue that it could raise a host of problems for the operation of Social Security and other vital federal programs.
There is substantial agreement among economists that strict annual balanced budget amendments have harmful near-term economic effects. They argue that requiring a balanced budget every year would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses.
Congress may propose an amendment to the Constitution whenever two-thirds of both houses of Congress deem it necessary. Alternatively, Congress must call for a constitutional convention for the purpose of proposing amendments on application of the legislatures of two-thirds of the states. The amendment must then be ratified by the legislatures or conventions in three-fourths of the states.
