The Balanced Budget Amendment: Who Proposed It?

The Balanced Budget Amendment is a constitutional rule that requires a state to refrain from spending more than its income. It mandates a balance between the projected receipts and expenditures of the government, either annually or over a multi-year period. Several countries and US states have adopted such an amendment, and there have been numerous proposals for a similar amendment to the US Constitution.

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Arguments for and against a balanced budget amendment

The debate around a balanced budget amendment to the US Constitution has been a contentious issue in American politics. Those in favour of such an amendment argue that it is necessary to protect future generations from the burden of accumulated debt. They believe that a constitutional constraint is required to prevent lawmakers from acting irresponsibly and that it will create strong political pressure to rein in deficits. Proponents also support restricting the power and scope of the government.

Opponents of a balanced budget amendment argue that it could limit the ability of future policymakers to respond to economic crises and national emergencies. They argue that a government budget is not like a household budget and that deficits are sometimes necessary to address economic or foreign threats. Some also 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.

Mainstream economists are divided on the question of how important it is for the US to tackle its budget deficit and total outstanding debt. Some argue that drastic action could derail the economy, while others believe that government debt will eventually become a problem and should be tackled now. There is also a minority view that government budget deficits are not a concern.

A balanced budget amendment would require a balanced budget every year, regardless of the state of the economy, unless a supermajority of both houses overrode that requirement. This could lead to large budget cuts or tax increases when the economy is weakest, potentially tipping weak economies into recession and making recessions longer and deeper, resulting in significant job losses. It could also lead to a breakdown in certain federal social programs, including Social Security and retirement programs for military personnel and veterans.

The impact on the economy

A balanced budget amendment to the US Constitution would require a balance between the projected receipts and expenditures of the government, prohibiting the country from spending more than its income. While this has been implemented in some countries and US states, it is controversial and potentially dangerous.

A balanced budget amendment would require a balanced budget every year, regardless of the state of the economy, unless a supermajority of both houses overrode that requirement. This would require large budget cuts or tax increases when the economy is weakest, threatening to tip weak economies into recession and making recessions longer and deeper, causing very large job losses. When the economy weakens, revenue growth drops, and revenues may even contract. As unemployment rises, expenditures for programs such as unemployment insurance, food stamps, and Medicaid increase. This would be the opposite of good economic policy, which would advise cutting spending and raising taxes when the economy is strong, not weak.

In times of recession, deficit spending has significant benefits, whereas spending cuts by governments aggravate and lengthen recessions. During economic downturns, consumers and businesses spend less, which causes further job losses. The drop in tax collections and increases in unemployment insurance and other benefits that occur automatically help to stabilize the economy. A balanced budget amendment would effectively suspend these automatic stabilizers, requiring that federal spending be cut or taxes be increased to prevent a deficit from occurring.

Some argue that a balanced budget amendment would reduce deficit spending and constrain politicians from making irresponsible short-term spending decisions when they are in office. Research shows that balanced budget amendments lead to greater fiscal discipline. However, there is substantial agreement among economists that strict annual balanced budget amendments have harmful near-term economic effects.

Historical Context

Historically, the US Constitution has not included a balanced budget provision, and Congress usually does not pass one. However, several proposed amendments to the Constitution would require a balanced budget. Most of these proposed amendments would allow a supermajority to waive the requirement in times of war, national emergency, or recession.

One of the earliest proposals was presented by Senator Millard Tydings, who introduced a resolution in support of an amendment that would have taken away some of the US Treasury's flexibility with respect to debt management. On May 4, 1936, Representative Harold Knutson introduced a resolution in support of an amendment that would have placed a per capita ceiling on the federal debt in peacetime. In 1982, with the support of President Reagan, the United States Senate introduced and debated Joint Resolution 58, an Amendment to the United States Constitution requiring a balanced budget. In 1997, more than 1,000 economists, including 11 Nobel laureates, issued a joint statement condemning the proposed amendment. In 2011, the House of Representatives voted down a balanced budget amendment that would not have imposed a supermajority requirement on tax increases.

The role of politicians

On the other hand, opponents of the amendment argue that it is not just a short-term solution but has to work years after being adopted. They highlight that politicians will find ways to spend beyond their means, even with a constitutional amendment in place. This has been evident in states with balanced budget provisions, where governments have borrowed money while adopting budgets that appear to be in balance. Opponents also argue that a constitutional amendment is not necessary, as Congress can address spending and the deficit through statutory efforts without waiting for ratification.

Some politicians have introduced proposals for a balanced budget amendment. For example, Senator Millard Tydings proposed a resolution in support of a Constitutional Amendment that would limit the US Treasury's flexibility in debt management. Representative Harold Knutson introduced a resolution in 1936 to place a per capita ceiling on the federal debt in peacetime. More recently, in 2023, H.J.Res.15 proposed a balanced budget amendment to the US Constitution.

While the proposal for a balanced budget amendment has gained bipartisan support, it has become more associated with the Republican Party in the 21st century. The role of politicians in this debate is to carefully consider the potential benefits and drawbacks of such an amendment and make decisions that are in the best interests of the nation's economic health and governance.

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Examples of balanced budget amendments in other countries

While there is no balanced budget provision in the US Constitution, several US states have a balanced budget amendment in their constitutions. These include Indiana, Oregon, Wyoming, and most other US states.

Outside of the US, several countries have implemented some form of balanced budget amendment or "debt brake". Here are some examples:

• Germany: Germany has a balanced-budget provision in its constitution, targeting structural budget deficits rather than total deficits.
• Hong Kong: The Hong Kong Basic Law stipulates that the government must keep "expenditure within the limits of revenues in drawing up its budget" and "avoid deficits".
• Italy: Italy's constitution includes a balanced-budget amendment, similar to Germany's, targeting structural budget deficits.
• Sweden: While Sweden does not have a constitutional amendment, it has statutory and political fiscal rules. The Swedish government is required to run a budget surplus of at least 1% of GDP on average over a business cycle.
• Switzerland: Switzerland's citizens adopted the debt brake as a constitutional amendment in 2001, and it was implemented in 2003.
• Spain: In 2011, the Spanish Parliament proposed a balanced budget amendment, requiring a balanced budget at the national and regional levels by 2020.
• Denmark, Latvia, Lithuania, Malta, and Singapore: These countries have constitutional rules about budget balance or deficits, but they do not require a balanced budget during recessions.

It is worth noting that the proposed US balanced budget amendment is considered extreme by international standards, as it would require a supermajority vote in both the House and the Senate to waive the balanced budget requirement, even during a recession. Most other countries' fiscal rules can be overridden by a simple majority vote or through normal political processes.

The legislative process for proposing an amendment

Congress can propose an amendment when two-thirds of both Houses deem it necessary. The proposal takes the form of a joint resolution, which is forwarded directly to the National Archives and Records Administration's (NARA) Office of the Federal Register (OFR) for processing and publication. The OFR then adds legislative history notes to the joint resolution and publishes it in slip law format.

If a constitutional convention is called for by two-thirds of the state legislatures, it is the responsibility of Congress to call this convention. This has never happened in the history of the United States.

Once an amendment is proposed, it is sent to the states for ratification. An amendment becomes part of the Constitution as soon as it is ratified by three-fourths of the states (38 out of 50). When the OFR verifies that it has received the required number of authenticated ratification documents, it drafts a formal proclamation for the Archivist of the United States to certify that the amendment is valid and has become part of the Constitution.

Several amendments to require a balanced budget have been proposed in Congress, including by Senator Millard Tydings and Representative Harold Knutson in the 1930s. In recent years, proposals for balanced budget amendments have become more associated with the Republican Party.

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