The Federal Balanced Budget Amendment: How can something that sounds so good be so destructive?

Congressional leaders are indicating that they’ll vote before Thanksgiving on a Constitutional amendment to require a balanced federal budget. Such an amendment would limit the amount of money the federal government can spend each year regardless of circumstance.  The Budget Control Act of 2011 – the bill that Congress passed this summer, preventing the country from failing to pay its bills on time – requires both the House of Representatives and the Senate to vote on this balanced budget amendment (BBA).

Many states operate with a similar mechanism. In Arkansas we have the Revenue Stabilization Act that mandates the state budget be in balance before it can be signed into law. This very thing-the fact many states have a BBA or similar instrument-is a common argument in support of a federal balanced budget amendment.

But in reality, states largely balance their budgets thanks to federal government dollars. Let’s step outside of Arkansas to look at an example. The following graph shows how Oklahoma has weathered the Great Recession thanks to federal tax dollars.

Thank you, Oklahoma Policy Institute

Oklahoma avoided disastrous cuts during the recession by using federal relief from the American Recovery and Reinvestment Act (shown in yellow) to supplement state spending. In 2010, that federal money accounted for more than 12 percent of all state appropriations. The picture is the same nationwide; without an influx of counter-cyclical federal spending, we would have seen devastating job losses in the public sector.

If the federal government had a balanced budget in place, Oklahoma, Arkansas and all other states, would have faced far more dire circumstances than they did. It’s hard to imagine the impact cutting programs like Medicaid, ARKids First, and child care would have on Arkansans.   Our state certainly would have faced those choices without our $2.3 billion share of the Recovery Act. (1)

A particularly troubling part of versions of the Balanced Budget Amendment circulating around Washington, D.C. is the requirement that two thirds of Congress-including both houses-must approve any increase in tax revenue. In the current climate it is hard to imagine that two thirds of all Congressional members would agree on the color of the White House, let alone something as difficult as passing a tax increase. The fact is, sometimes we need more tax revenue in order to pay the bills. Much like folks do at their own homes, sometimes we need to take a second job if our current income isn’t enough. Once we get things under control, it’s easy to drop that second job. But for a short period of time, it’s necessary to survive. Under a federal balanced budget amendment, the country would be severely limited-practically prohibited-from that option.

Congress has balanced the budget in the past. It was done without draconian spending cuts or significant tax increases. Through practical budgeting and spending decisions, Congress balanced the budget and operated with a surplus for two years before President Clinton left office. We do not need yet another law telling Congress how to act. We just need members of Congress to look at recent history, to stop playing games, and to do what’s right for the American people.



(1): Recovery.gov