More on a Balanced Budget Amendment with Michael Linden

In an effort to try to get more information on each issue, ChrossTalk tries to cover recent interview topics with other experts. We’ll be publishing these interviews as soon as we get them.

For more information about a balanced budget amendment, Chip talked to Michael Linden, Director of Tax and Budget Policy at the Center for American Progress. Here is an edited transcript of the interview:

Chip Lebovitz: What are the pros and cons of a balanced budget amendment?

Michael Linden: Let me start with the cons cause it’s mostly a bad idea. Unless the balanced amendment is designed very well, the idea that the federal government needs to have a balanced budget in every year is simply wrong. Under certain circumstances in emergencies, recessions, natural disasters, it’s totally acceptable, in fact even a good thing, for the United States to run a deficit. To say that the United States must have a balanced budget at all times just ignores economic theory and history.

Fundamentally whether or not the country has a balanced budget will depend on the decisions that Congress makes about spending and about revenue – not changing the Constitution. That’s not a real viable way to achieve a balanced budget. That’s essentially like trying to achieve a balanced budget just by declaration. “We shall have a balanced budget and therefore we do.” It doesn’t really work that way.

Thirdly, we have not needed a balanced budget in the past to achieve a balanced budget. The last time we did was in the late 1990’s and in fact, it came on the heels of a failed balanced budget amendment. Just proving that you don’t need to change the constitution to have fiscal responsibility, you need good decisions on fiscal matters and that’s different issue entirely.

A very well designed balanced budget amendment could encourage lawmakers to consider the fiscal consequences of their decisions much more then they have in the past. But again you want to be really careful in designing one of these because you could end up doing a lot more harm than good.

Chip Lebovitz: One defense proponents of the plan use to support a balanced budget amendment is that all 50 states have a balanced budget amendment, so why shouldn’t the federal government have one. How is federal spending different than state spending?

Michael Linden: Well that’s actually an argument for not having a balanced budget requirement at the federal level. One of the problems that we’ve just seen, that we’ve just lived through over the past three years is that when a big recession hits states because they have to keep a balanced budget, states have to slash spending which hurts the economy and increases taxes which during a recession, hurts economy. The only government that can borrow, that can make up that difference and mitigate those effects is the federal government. If the federal government had to maintain a balanced budget throughout this past recession, it would have been much deeper and more painful. So it’s a very important difference.

The other thing people never mention about the states is that many states have lots of ways of getting around their balanced budget amendments. Bond issues, which are essentially debt, are often not considered as part of their budgets and doesn’t count against (the states) on the balanced budget amendment. So they actually have built in ways to avoid having to balance their budget, which just goes to show that these types of constitutional solutions aren’t really useful.

Chip Lebovitz: In the most recent iteration of a balanced budget amendment, the Cut, Cap and Balance Act, federal spending is capped to 18 percent of GDP. Why that number and is that a reasonable number to cap spending at?

Michael Linden: 18 percent is not a reasonable level to cap spending but this proposal doesn’t even cap spending at 18 percent. It actually caps spending at around 16.5 percent of GDP because it uses the previous year’s GDP as its base.  Spending for the federal government has not been that low in more than 50 years. We have not had spending even close to that level, so (18 percent) is completely outside the realm possibility. The country is very different from the last time we were able to spend less than that. We are an older country. We are a richer country. We have more needs – healthcare costs more, education costs more. It’s completely ridiculous to consider 18 percent of GDP as a reasonable cap.

Furthermore any balanced budget amendment that caps spending at a particular level should be ruled out immediately. Balanced budgets are produced by spending and revenues being matched. It doesn’t mater what level they are matched at. That’s a different discussion. You can have a debate about if you think that spending is too high or spending is too low but if we really care about balancing the budget it doesn’t matter where we do that. We could have a balanced budget at 0 percent of GDP. If there were no spending or no revenue, it’s a balanced budget. Of course that’s ridiculous, that’s not the point of a balanced budget amendment.

I don’t think that any balanced budget amendment that has a spending cap is reasonable. That’s a poorly designed balanced budget amendment and should be ruled out immediately.

Chip Lebovitz: What are the differences between the Cut, Cap, and Balance plan and past balanced budget amendments like the one debated during the Clinton years?

Michael Linden:  The (amendment debated during the Clinton years) did not have a spending cap on it. It certainly didn’t have a spending cap at 18 percent of GDP. That one had safety valves for economic consequences. Now (the amendment) was not necessary.  The balanced budget amendment did not pass and yet, the federal government ended up with a balanced budget just three years later. The whole debate about a balanced budget is a distraction from what is actually important in terms of balancing the budget and that is changing our spending policies and changing revenue policies. I’ll take more seriously when a proponent of a balanced budget amendment comes up with a plan to actually balance the budget.

Chip Lebovitz: Why do you think partisan lines are so stridently drawn on this issue?

Michael Linden: I don’t think they are particularly stridently drawn on this issue. There are Democrats in favor of a balanced budget amendment – I think they are mistaken – but I think there are certainly Democrats who are in favor of it.

There is a very strong partisan divide on this particular iteration of a balanced budget version, the Cut, Cap, and Balance version, because it’s just plainly foolish. Like I said, balanced budget amendments are a way for people that don’t have a plan to actually balance the budget to be for balanced budgets. I don’t think people should let them get away with that.

Want to read more work by Michael Linden? Click here to see a list of his most recently written articles. We’d like to thank Michael Linden for talking to us.

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