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The high price of a Balanced Budget Amendment

By John A. Tures
Associate Professor of Political Science
LaGrange College

August 1, 2011


Polls show a majority of American people want it.    Almost every state has one. The budget ceiling deal agreed to by the White House and Congressional leaders Sunday doesn't require Congress to pass it, but it does require that it vote on the question later this year.  I think a Balanced Budget Amendment isn’t a bad idea; the benefits are preferable to concerns about default and downgrading our credit rating.  But don’t get fooled into thinking a Balanced Budget Amendment is an easy or cost-free plan.

A balanced budget would allow us to start paying down our mountain of debt.  As President Clinton found out with the deficit reduction plan, when you start paying down the deficit, revenues increase and the economy gets a jump start.  That’s because public borrowing crowded out private borrowing.  A lower deficit allowed banks to loan to businesses, jump-starting a stalled economic recovery.  With Republicans like House Speaker Newt Gingrich pushing for additional cuts in spending, the stage was set for one of our strongest economic decades, as well as a massive budget surplus, wiped out by reckless spending and tax cuts after 2001, along with some really expensive wars.  So it’s a good idea for the economy, in addition to our bond rating.

But don’t be fooled by the rose-colored glasses the politicians are making you wear.  There will be painful spending cuts and tax increases that will affect everyone reading this column. 

First, no matter which party is elected, the huge wave of baby boomers hitting retirement will explode costs associated with Social Security.  Just to keep Social Security from going bust, every idea must be implemented.  That means a higher retirement age, lower Social Security benefits, and resurrecting President George W. Bush’s partial privatization plan.  All of these will be mandatory under a Balanced Budget Amendment.  It still may not be enough.

We’ll also have to finally face the Medicare crisis.  Health care spending by consumers and the government will double over the next decade to $4.6 trillion.  I know folks can’t wait to repeal “Obamacare” but (a) it only represents a fraction of the cost increase, and (b) repealing it will actually make things worse for a Balanced Budget Amendment, as it was paid for in Medicare cost savings.

Second, it will lead to other cuts that are hard to swallow.  Folks naively we can balance the budget simply by cutting all foreign aid.  Well, that would shave $23.5 billion off of the debt, a far cry from the trillions owed.  Education spending only represents a fraction of the bill.  No, the Pentagon can expect the bulk of the budget ax.  The good news is that we spend so much more than China, Russia, and Europe (combined) that we have some breathing room.  But we’ll no longer be 10 times, or five times ahead of our nearest rival.  That means China taking Taiwan, Russia taking Georgia (the other one), and fewer nukes.  And we’ll have to leave Iraq and Afghanistan, whether we want to or not.

Third, based upon those exploding demographic factors, we’ll have to raise taxes, if with increased revenues from an economic recovery.  Look for a repeal of the Bush tax cuts, closing loopholes, limiting deductions, higher taxes that people don’t pay attention to (sales taxes, gas tax, and those “fees” like the kind Mitt Romney increased in Massachusetts).  Pray we don’t have another war, terror attack or hurricane + tornado as well, or these will go up.

Despite these costs, I can still support a Balanced Budget Amendment.  Unfortunately, according to a Fox News poll, a lot of people can’t stomach them .  It’s time to have that serious heart-to-heart talk with the American people, before the Balanced Budget Amendment is passed and we get the bill.







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