Policy Documents

Research & Commentary: A Federal Balanced Budget Amendment

November 10, 2010

The current public outrage over bailouts, excessive spending, and a staggering national debt are helping fuel the push for a federal balanced budget amendment. Over the years, many renowned economists, including Nobel Laureates James Buchanan and Milton Friedman, have advocated such an amendment.

The federal deficit for 2010 is estimated at a whopping $1.3 trillion, and the national debt ballooned to more than $13 trillion earlier this year. Those numbers don’t take into account an estimated $111 trillion in unfunded Social Security and Medicare liabilities.

Critics of a balanced budget amendment note that although 49 of the 50 states are required to balance their budgets, many use budgetary tricks and borrowing to sidestep those requirements. As a result, many states continue to face massive budget deficits and increasingly unsustainable unfunded liability obligations. Although some say this proves balanced budget requirements to be ineffective, there is no telling how much worse the fiscal situation in these states would be without a balanced budget requirement.

Critics also argue that requiring a balanced budget merely paves the way for tax increases. To curb such fears, many balanced budget proposals—such as that developed by Sen. Jim DeMint—would require a 2/3-majority vote in Congress to raise taxes. This is essential in preventing a balanced budget requirement from turning into a justification for tax hikes.

A balanced budget requirement would force Congress to confront issues it can currently ignore. Although it’s no silver bullet, requiring Congress to balance the budget each year and gain a supermajority to raise taxes will open up a more lively national discussion on deficits and government spending.

The following articles offer further information about and insight into how a properly formulated balanced budget amendment could help fix the nation’s fiscal problems.

Washington: Less Red Ink
http://www.theatlantic.com/past/docs/unbound/flashbks/budget/friedmf.htm
In this February 1983 classic essay, Nobel Prize-winning economist Milton Friedman gives his opinion on a balanced budget amendment that requires a supermajority to raise taxes. Friedman states, “The purpose of the balanced-budget-and-tax-limitation amendment is to limit the government in order to free the people—this time from excessive taxation. Its passage would go a long way to remedy the defect that has developed in our budgetary process.”

The People Can Fix the Budget
http://www.politico.com/news/stories/0810/40714.html
Norm Coleman, a former U.S. Senator and current CEO of the American Action Network, argues for a balanced budget amendment: “We need a balanced-budget amendment to our Constitution. We need laws that require a two-thirds supermajority to raise taxes, so that Congress and the president don’t use a balanced-budget amendment as an excuse to raise taxes.”

Clarifying Confusion About the Balanced Budget Amendment
http://www.budgetandtax-news.org/article/28595
In a September 1995 article in the National Tax Journal, Nobel Laureate economist James Buchanan explains that fiscal sanity cannot be achieved through ordinary politics and thus necessitates a constitutional requirement. He presents two alternatives: “Adopt the constitutional amendment that requires budget balance now, or face fiscal-economic-political disaster in the rapidly approaching day of reckoning. Sooner or later, the piper must be paid.”

Why a Tax Limitation/Balanced Budget Amendment Is Needed to Control Spending
http://www.budgetandtax-news.org/article/28597
Daniel J. Mitchell, a senior fellow at the Cato Institute, explains how a federal balanced budget requirement combined with a tax limitation mechanism can curb government spending. He notes, “A strong provision to limit taxes—such as a two-thirds supermajority requirement to raise taxes—would help ensure that politicians could not evade the amendment’s intent by simply replacing debt-financed spending with tax-financed spending.”

Solving the Federal Spending Crisis With a Balanced Budget Amendment
http://www.budgetandtax-news.org/article/28596
This Heritage Foundation paper by Daniel Mitchell and John Olin lays out how a balanced budget amendment can help fix the federal government’s spending problems. They write, “Under a tax limitation/balanced budget amendment, however, taxes as well as borrowing would be restricted, leaving lawmakers with no choice but to hold down spending. If history is any guide, the best balanced budget amendment is the one that would leave lawmakers with as little discretion as possible.”

Mandate for a Balanced Budget
http://www.aei.org/article/102136
Former House Speaker Newt Gingrich, a senior fellow at the American Enterprise Institute, and U.S. Representative Mike Coffman, who represents Colorado’s 6th Congressional District, penned this op-ed supporting the idea of a federal balanced budget amendment. They note, “Balanced budgets, declining federal debt, lower taxes, low interest rates, and government reform is a recipe for prosperity. It’s not a secret. This is what we did to achieve prosperity in the 1990s.”

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://www.heartland.org and PolicyBot, Heartland’s free online research database.

If you have any questions about this issue or The Heartland Institute, you may contact Legislative Specialist John Nothdurft at jnothdurft@heartland.org 312/377-4000.