What about an amendment to the Constitution to prohibit the waves in Lake Michigan? That would make about as much sense as the “balanced budget amendment” on which the Senate will vote shortly.
That amendment is bad law-bad for the nation and for the State of Illinois. It is terrible economics. As the Clinton administration has pointed out, if executed literally, it could force average tax increases of $822 a year per Illinois taxpayer and, for each recipient, cuts in Social Security retirement benefits of $638 and cuts in Medicare by $555 and Medicaid by $184. And then we would still have to cut federal aid for crime fighting, highways, education, the environment and other programs in Illinois by $1.3 billion.
But it might be argued that all this pain is necessary to improve the economy and gain a better future. It won’t do either. It will bring a collapse of private investment and curb public investment in infrastructure, in research, in education, in health and in new high technology-all that really count for our future.
Most of the public and, I fear, much of the Senate have no understanding of how the federal budget deficit is calculated and what a “balanced budget” would mean. It is often said, “I balance my checkbook. Why can’t the government balance its?”
But in fact, by the weird methods of federal accounting, almost all of us would prove guilty of maintaining unbalanced budgets.
After all, most Americans have gone hugely into debt when they bought houses. Many more have borrowed to finance their own or their children’s college educations. We properly view spending out of such borrowing as “investment”-in a home in which we can live for decades or in schooling that will pay off over a lifetime.
Almost all American business borrows, and borrows heavily, to finance investment in new plant and equipment and new technology. Most of this borrowing and spending is not counted directly in business profit and loss statements; only depreciation, the using up of past investment is counted. If business followed federal accounting rules, it, too, would generally be showing losses.
But our federal government, unlike private business and unlike the State of Illinois, other state governments and national governments around the world, keeps no separate capital budget.
All federal spending-for investment, for paying government workers, for lending to small business, for Social Security, for interest on the debt-is generally lumped together as “outlays.” When outlays exceed tax revenues we have a “deficit.” It is as if a family made no distinction between spending to buy a house or go to school and gambling away borrowed money in Las Vegas.
All this, and more, is ignored in the proposed constitutional amendment. One section declares, “Total outlays. . . shall not exceed total receipts.” That is like commanding those waves of Lake Michigan to cease. What if the waves refuse to obey?
Tax receipts go down automatically when individual and business incomes go down. Outlays for unemployment insurance go up automatically when unemployment rises. That means that even if we somehow could start with a balanced budget, if the economy slowed, the budget would become unbalanced, as tax receipts fell and outlays rose.
What do we do then? Put the tax collector in jail for violating the Constitution? Or do we raise tax rates and cut unemployment benefits to try to balance the budget.
Those would indeed be the worst things we could do. By collecting more taxes and cutting people’s benefits, we would reduce people’s purchasing power and only slow the economy more.
“No,” some may say, “cut government spending to balance the budget.” But that, too, would slow the economy. People who lose their jobs because the government fires them or stops spending for roads, police, defense or anything else have lost their jobs just as surely as those who lose their jobs in any other, private layoffs.
The 1995 Clinton deficit is now projected at about $170 billion, little more than half of the $327-billion forecast by the Bush administration for 1993 just before it left office. The reduction is coming about in major part because the economy, while still far from fully recovered, has been getting better.
That deficit would mean $170 billion of borrowing and hence an increase in the federal debt of $170 billion. But that increase in the debt means that it will be growing less rapidly than the nation’s income, well within the guidelines of prudent finances for business or individuals. The debt-income ratio would be coming down.
Reducing the deficit further carries grave risks. President Clinton has just happily announced a $6-billion sale of U.S. airliners to Saudi Arabia, which he estimated would create 60,000 American jobs. Balancing the budget, if it were done next year would take away roughly $170 billion in sales by American business as our purchasing power would be reduced by that much.
But even worse is the idea of putting this outrageous and perverse economic dogma into the United States Constitution. It would plunge courts, accountants and lawyers into perennial battles on how to report the budget. It would invite tricks and subterfuges to report a “balance.”
Instead of making outlays itself, the federal government could order the states or private business to make them or pass regulations requiring individuals themselves to make expenditures. It could endlessly redefine what is in the budget and what is “off-budget”-at least until the next judge caught up with it.
A truly “balanced budget” by current federal accounting procedures would be a disaster. It would tie the hands of the government in keeping the economy balanced and would plunge us back into recession and increasing unemployment.
Given justifiable resistance to large tax increases, it would block us from the essential investment spending for public infrastructure, education and research and a successful war against the crime that is destroying our cities and so many of our lives.
And worst of all, backers of a constitutional amendment would mandate all this and lock it into the basic guarantor of so many of our rights and liberties-the United States Constitution.
It ain’t broke. Don’t try to fix it.
