Posts Tagged ‘deficit’

A Balanced Look at a Balanced Budget Amendment

August 26, 2011

The growing concern about America’s mounting national debt and the inability of our elected leaders to adequately address it has led to many calls for a balanced budget amendment (BBA) to the U.S. Constitution. Given our current fiscal problems, the attractiveness of requiring federal spending and revenue to balance each year is obvious and no doubt that numerous candidates will tout their support for a BBA as evidence of their seriousness when it comes to fiscal responsibility. However, the conversation regarding a balanced budget is becoming decidedly unbalanced, with political ideology trumping fiscal sanity. Before we get unhinged about a balanced budget amendment, let’s take a poised look at it.

One need look no further than the states to see the popularity, and shortcomings, of a BBA. Proponents like to point to the fact that at least 45 states (and as many as 49, depending on the definition) have some form of balanced budget requirement as evidence of the feasibility and appeal of such an approach. What they don’t point out is that the budget situation in many of these states is worse than the abysmal federal condition. Less transparency and more budget gimmickry often result as policymakers seek to circumvent balanced budget constraints by keeping things such as public pensions and healthcare costs off budget. The fact that budgetary basket case California has a balanced budget amendment should highlight the limitations of this route. In addition, many states and localities, unlike the federal government, have separate budgets for capital expenditures, which are often financed through the issue of bonds. Therefore, translating the practices of states to the federal level is not as straightforward as it seems at first blush.

One thing is clear; we will have a balanced budget amendment debate in the U.S. this year. The recent debt ceiling deal dictates that both the House and Senate must vote on a BBA between October 1 and December 31, 2011. The discussion will be intense, with many arguing that a BBA will be essential to improving our fiscal outlook. In order to be productive, the dialogue needs to be informed by some key points.

First of all, many budget experts argue that the fiscal situation in this country has gotten so out of hand that balancing the federal budget in the near term is practically impossible. This contention is borne out by the fact that the budget plan passed by the House earlier this year, which slashes spending substantially, would not balance the budget within the next decade. This also underscores how difficult it will be to balance the budget without increasing revenue somehow.

In fact, many conservatives in the past refused to support a balanced budget amendment because they feared it would inevitably lead to higher taxes. Such concerns were behind the crafting of the BBA supported by all Senate Republicans and a similar version that was approved by the House Judiciary Committee, which in addition to requiring a balanced budget, also calls for capping spending at 18% of GDP and a two-thirds supermajority vote in both houses to raise taxes. This approach, supported by many conservatives, goes well beyond a traditional BBA. Don’t be surprised if progressives respond with their own slanted version. We are already seeing it with a BBA authored by Senator Mark Udall (D-CO) that may serve as the Democratic counterweight to the GOP-backed version. Udall’s BBA would exclude Social Security from the balanced budget requirement and prohibit enacting tax cuts for those making over $1 million a year unless the budget is in surplus.

Balanced budget requirements driven by political dogma will severely constrain the budget choices of policymakers and only make the fiscal situation worse. Instead of a rigid BBA, more flexible fiscal rules may be more effective. Experiences abroad offer momentum and insight. Italy recently agreed to pursue a balanced budget amendment to its constitution in order to reassure creditors about its spiraling debt. And recently the heads of France and Germany called for all Eurozone countries to enact balanced budget requirements as Europe deals with a deepening debt crisis.

The international experience also provides some innovative ideas for a BBA. In 2001, voters in Switzerland overwhelmingly approved of a balanced budget amendment to the country’s constitution in response to rapidly rising national debt. The Swiss “debt brake” put a little twist on the traditional BBA. Instead of demanding a balanced budget each year, the Swiss version balances the budget over the economic cycle, meaning that the government is allowed to run a deficit when the economy is struggling in exchange for being in surplus during boom times. This approach negates one of the major criticisms of a BBA – that it hamstrings the ability of governments to respond to crises and prevents automatic stabilizers like unemployment insurance and welfare benefits from kicking in when they are most needed, during economic slowdowns.

In 2009, Germany instituted a similar debt brake. Although it is too early to make any conclusions from Germany, the fact that Switzerland has weathered the global recession better than most countries has many looking there as an example for the U.S. to follow. However, some argue that the export-oriented Swiss economy has benefited from economic stimulus measures undertaken by its neighbors. Some also point out that the model is flawed because it is difficult to exactly define an economic cycle. Chile and Sweden also provide examples that should be examined.

Yet, a major impediment to a balanced budget amendment is the fact that amending the U.S. Constitution is not an easy task. In addition to two-thirds majorities of both houses of Congress approving a BBA, three-fourths of the states must also ratify it. Relying on a long process with an uncertain ending while the fiscal situation deteriorates further is not a good option.

The federal budget process is definitely broken and in desperate need of reform. But there are plenty of fiscal rules and budget reforms that can be implemented now, as opposed to going through the constitutional route. One of the projects I have worked on, the Peterson-Pew Commission on Budget Reform, has offered a detailed framework for budget process reform that will not require changing the constitution and will facilitate a fiscal plan to put the U.S. on the right course.

Most importantly, process changes like a balanced budget amendment must complement, not supplant, concrete policies to reduce the debt. A balanced budget amendment, or any other fiscal rule, will not substitute for making tough budget decisions. A politician’s support for a BBA cannot stand as their sole, or even primary, solution to our fiscal problems. We need a comprehensive, multiyear fiscal plan that stabilizes the debt in the medium term and reduces it further down the road.

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My Declaration for the Fourth

July 2, 2011

Amid the cook-outs and fireworks this weekend, it is easy to forget the real reason we celebrate the Fourth of July. It is because 235 years ago the Continental Congress adopted a radical document stating that it was necessary for the 13 American colonies to severe their bonds to the British Empire in order for their inhabitants to enjoy the “unalienable rights” bestowed upon all men, namely “life, liberty, and the pursuit of happiness.”

Eventually, 56 men signed the Declaration of Independence, agreeing to “mutually pledge to each other our lives, our fortunes and our sacred honor.” It was not a hollow pledge. These were men of stature, and many of them of significant wealth. They had much to lose in attaching their names to this document. They put their status, wealth, and their very lives on the line in what was effectively treason against the Crown.

No doubt many of the delegates who signed the document did not agree with every single word in it, yet they signed it nonetheless, even though so much was at stake personally. These men from vastly different backgrounds and political inclinations banded together for a purpose that was larger than any of their individual interests.

And because these leaders were able to put their personal desires and differences aside in order to unite for a higher purpose, thousands of Americans took up their cause, leaving their homes, livelihoods and families to risk their lives fighting the most formidable army in the world in pursuit of independence. Unfortunately, we are now a long way from those days.

Today, our leaders are more inclined to make pledges that divide, instead of unite us. Politicians on the right are compelled by interest groups to pledge not to raise taxes, even to the point of maintaining inefficient tax preferences for oil, gas and ethanol and tax breaks for the wealthy. Lawmakers on the other side are pressured to pledge not to do anything that affects entitlement benefits.

The result is stalemate and inaction in addressing the budgetary challenges confronting the country. I believe that putting the U.S. on a fiscally sustainable path in a manner that enhances long-term economic growth and competitiveness is the challenge for our generation. We must recognize the moment at hand and summon the courage and cooperative spirit of our forefathers in meeting it.

Left unchecked our mounting national debt presents a dire threat that rivals that posed by any conceivable military or economic foe. Only through a bipartisan process in which both sides engage in good faith with all options on the table will we produce the appropriate response. All will find some provisions unpleasant, but we all must understand that our fiscal predicament is so grave that difficult choices and tradeoffs will be required. 

We can overcome this challenge and emerge a stronger nation, just as we have with every past ordeal that confronted us. But it will require the same spirit of shared sacrifice, cooperation, determination, and vision that we have collectively mustered in previous trials.

While this foe may not have a face, the consequence of failure certainly does. We need look no further than Greece to see the suffering and strife that can occur. While the effects in the U.S. may not be as pernicious, they will be far-reaching. Decisive action is required. The nation needs leadership now.

So, as we fire up the grill and light the fireworks, let’s also resolve to address our fiscal challenges with the same fortitude that this nation was founded on.

The Bulge We Should Be Worried About

June 9, 2011

All the talk about the bulge in Rep. Anthony Weiner’s pants is distracting from the real bulge we should be worried about — our bulging national debt.

Without action, our debt will hit unprecedented heights. Under realistic assumptions, public debt is projected to reach over 120% of GDP by 2030 and over 180% by 2040. The graph below is the bulge shot that should be freaking people out.

Bipartisan talks led by Vice President Biden and the bipartisan Gang of Six senators are trying to find solutions. Let’s hope they succeed.

Source: Committee for a Responsible Federal Budget http://crfb.org/document/averting-fiscal-crisis

Bring on Budgetball

May 15, 2010

The Policy Daddy cares so much about spreading the word regarding the need for responsible budget policy that he is putting his body, and pride, on the line this coming Friday. I will participate in the Budgetball on the Mall tournament on the National Mall in Washington, DC on May 21 starting at 3 pm.

Budgetball was created as a unique way to get youth and others to think about sound budgeting. It’s the only sport I know of that involves oven mitts, though there may be a few cooks who take issue with that. The game is hard to explain. It’s best to check out the website at www.budgetball.org/crfb/. Better yet, come out on May 21 and see for yourself.

Of Reality Shows and Facing Reality

November 22, 2009

There is no denying that “reality TV” has ingrained itself into our culture.  A look at recent headlines confirms this.  But the headlines also underscore how reality shows are nothing like the reality most of us face.  As families struggle with finances in this bleak economy, not only do we find our world completely apart from the one inhabited by the Kardashians and the like, but also increasingly adrift from Washington.  The politicians seem oblivious to the situation, even though the federal budget is as dreadful as many family budgets.

The “balloon boy” parents pleaded guilty recently to charges stemming from their now infamous stunt in which the former “Wife Swap” stars reportedly tried to snag a reality show of their own.  Unlike the bizarre episode they concocted that had many Americans riveted to their TV sets for a day, ballooning federal budget deficits are no hoax and demand our sustained attention.  These balloons won’t be coming down any time soon and it is very likely that our children are in for a rough flight.  Unfortunately, it is the would-be rescuers we find hiding in the rafters.

Massive red ink in government will affect significantly the standard of living of future generations.  The mounting disparity between federal receipts and expenditures – a record $1.4 trillion in 2009 – parallels the growing disconnect between Washington and the rest of the country as our elected representatives refuse to constructively address the dilemma and we fail to hold them accountable.  Now that U.S. National Debt reached a record high $12 trillion last week, the matter seems to have President Obama’s attention.  But it is still not clear that Washington has the resolve and farsightedness to seriously address it.

The “Dancing With the Stars” season finale is this week and there is growing anticipation over the upcoming season of “American Idol.”  At a time when too many families across the country have no choice but to face the financial music, it is disheartening to see the same old song and dance emanating from the nation’s capital.  However, we cannot use this as an excuse to tune out Washington.  It is exactly that attitude which has enabled the fiscally reckless behavior.  Instead, we must channel the same energy and ingenuity we are directing towards resolving our personal finances to restoring fiscal responsibility in government.

The resilience and resourcefulness that Americans are exhibiting in these trying times is inspiring.  Take for instance that fact that many people, of their own volition, are sending checks to the federal government to help pay down the national debt.  We must demand the same level of responsibility from our leaders – and ourselves – in tackling the national debt.  Just as we have learned to become more discerning consumers – leery of credit card and mortgage offers that sound too good to be true – so too must we be as voters in rejecting fiscally irresponsible campaign promises. 

Like many Americans, the fundamental need for fiscal responsibility literally hit home for me recently.  When I look at my two young children and ponder the future I can provide for them, I agonize over not only our family finances, but the larger economic picture that they will inherit.  I want to bequeath to them the promise of prosperity, not the obligation of debt.  That will only happen if we all start acting responsibly and face reality.

It is no wonder that the “Real World” and “Real Housewives” franchises are now filming in Washington.  The city is living in a reality of its own.  It is time for more action and less hot air and dancing around the issue.  We must deflate the deficits before they carry away our future.