Balanced Budget Amendment Would ‘Threaten The Economy’ By Making Downturns Worse

Bartlett: Balanced Budget Amendment “Would Force The Federal Government To Make Economic Recessions Worse.” According to Bruce Bartlett, a former adviser to President Ronald Reagan, in the Fiscal Times: “A BBA would force the federal government to make economic recessions worse. Since federal revenues fall and spending rises automatically in economic downturns, it would force spending cuts and tax increases at precisely the point when the economy is reeling, potentially turning a modest downturn into a depression.” [Fiscal Times, 8/27/10]

• Balanced Budget Amendment Would Have “Catastrophic” Impact If It Were Enforced In 2012. According to the Center on Budget and Policy Priorities: “Macroeconomic Advisers writes that if a constitutional balanced budget requirement had been ratified in 2008 and took effect in fiscal year 2012, ‘The effect on the economy would be catastrophic.’ If the 2012 budget were balanced through spending cuts, those cuts would have to total about $1.5 trillion in 2012 alone, which the report estimates would throw about 15 million more people out of work, double the unemployment rate from 9 percent to approximately 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.” [CBPP.org, 11/8/11]

OMB Watch: “Balanced Budget Amendment Could Impede Economic Recoveries.” According to OMB Watch: “While forcing Congress to balance the books through a constitutional mandate may be appealing to many fiscal hawks, a balanced budget amendment could impede economic recoveries following Wall Street meltdowns and other calamities.” [OMB Watch, 1/25/11]

Applied To American Families, Balanced Budget Requirement Would Prohibit Mortgages And Student Loans. According to Center on Budget and Policy Priorities president Bob Greenstein: “A family that takes out a student loan to send a child to college, for example, might end up with a large ‘deficit’ for that year — that is, it will spend more than it earns that year.  But a college education is a solid long-term investment that is likely to translate into significantly higher earnings over the child’s working career. Similarly, a family that obtains a mortgage will almost certainly have a ‘deficit’ for that year, but it will also have a house to live in. Families also build up savings in good economic times and draw them down when times are tight to cover expenses that exceed their current incomes. The proposed constitutional amendment would bar the federal government from such practices.  The federal government couldn’t borrow to finance investments that boost future economic growth, such as infrastructure improvements.  And if it ran a surplus one year, it couldn’t draw it down the next year to help balance the budget if the economy turned down.” [HuffingtonPost.com, 11/17/11]

Bush Policies And Recession Caused Debt To Skyrocket

Prior To President Obama’s Inauguration, President Bush Had Already Created A Projected $1.2 Trillion Deficit For Fiscal Year 2009. From the Washington Times:  “The Congressional Budget Office announced a projected fiscal 2009 deficit of $1.2 trillion even if Congress doesn’t enact any new programs. […] About the only person who was silent on the deficit projection was Mr. Bush, who took office facing a surplus but who saw spending balloon and the country notch the highest deficits on record.” [Washington Times, 1/8/09]

NYT: President Bush’s Policy Changes Created Much More Debt Than President Obama’s. The New York Times published the following chart comparing the fiscal impact of policies enacted under the Bush and Obama administrations:

[New York Times, 7/24/11]

Recession Added Hundreds Of Billions In Deficits By Increasing Spending On Safety Net While Shrinking Tax Revenue. The Center on Budget and Policy Priorities (CBPP) explains: “When unemployment rises and incomes stagnate in a recession, the federal budget responds automatically: tax collections shrink, and spending goes up for programs like unemployment insurance, Social Security, and Food Stamps.” According to CBPP: “The recession battered the budget, driving down tax revenues and swelling outlays for unemployment insurance, food stamps, and other safety-net programs. Using CBO’s August 2008 projections as a benchmark, we calculate that the changed economic outlook alone accounts for over $400 billion of the deficit each year in 2009 through 2011 and slightly smaller amounts in subsequent years. Those effects persist; even in 2018, the deterioration in the economy since the summer of 2008 will account for over $300 billion in added deficits, much of it in the form of additional debt-service costs.” [CBPP.org, 11/18/10; CBPP.org, 5/10/11, citations removed]

Over The Coming Decade, The Bush Tax Cuts Are The Primary Cause Of Federal Budget Deficits. The Center on Budget and Policy Priorities prepared a chart showing the deficit impact of the Bush tax cuts (orange), the Iraq and Afghanistan wars, the recession itself, and spending to rescue the economy:

[CBPP.org, 5/10/11]

CBPP: Bush Tax Cuts And Wars Are Driving The Debt. According to the Center on Budget and Policy Priorities:

The complementary chart, below, shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.

[Center on Budget and Policy Priorities, 5/20/11]

• Rep. Baldwin Opposed The 2001 Bush Tax Cuts. Rep. Baldwin voted “nay” on the Economic Growth and Tax Relief Reconciliation Act of 2001. [H.R. 1836, Vote #149, 5/26/01]
• Rep. Baldwin Opposed The 2003 Bush Tax Cuts. Rep. Baldwin voted “nay” on the Jobs and Growth Reconciliation Tax Act of 2003. [H.R. 2, Vote #225, 5/23/03]

Failure To Raise The Debt Limit Could Have Had Severe Economic Consequences

Debt Ceiling Does Not Determine U.S.’ Debt Level; It Is “A Limit On The Ability Of The Federal Government To Pay Obligations Already Incurred.” According to the Government Accountability Office: “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred. While debates surrounding the debt limit may raise awareness about the federal government’s current debt trajectory and may also provide Congress with an opportunity to debate the fiscal policy decisions driving that trajectory, the ability to have an immediate effect on debt levels is limited” [GAO.gov, 2/22/11]

Failure To Raise Debt Ceiling Could Have Resulted In Default Or Had Other Severe Economic Consequences. From CNNMoney: “A failure to raise the debt ceiling would likely send shockwaves through the underpinnings of the financial system — and possibly ripple out to individual investors and consumers. The federal government would be forced to prioritize its payments. It would risk defaulting on its financial obligations. And if that happens, credit rating agencies would downgrade U.S. debt.” [Money.CNN.com, 7/21/11]

Debt Limit Has Been Raised Over 90 Times Since 1940. From the Center on Budget and Policy Priorities: “Before World War I, Congress generally had to approve each separate issuance of federal debt. Since then, the limit has evolved into an overall dollar cap on the amount of debt the federal government can incur.  Since 1940, Congress has enacted 91 separate increases in the statutory debt limit, an average of one every nine months (though individual increases lasted anywhere from three days to eight years).” [CBPP.org, 7/21/11]