National Balanced Budget Amendment

One of the more popular ideas circulating to reduce federal government spending is for a balanced budget amendment to be added to the U.S. Constitution. Almost every U.S. state constitution currently has some version of a balanced budget amendment in place. Republican presidential candidate Rick Perry has said that it is one change to the Constitution that he would strongly support. Newt Gingrich and several other presidential candidates agree with Perry, a balanced budget must be a short-term goal for the United States. It's also a popular idea with voters; one poll shows that about 66% of Americans want a balanced budget for the federal government.


Governor Perry's preferred method to deal with federal overspending.

But what is popular is not necessarily a good idea. Let's look at the history of the U.S. budget and show how a balanced budget amendment would work and see if it seems like a great idea for the federal government.

A look at Federal Debt
One important fact to keep in mind when considering a balanced federal budget is that the United States government has always been in debt. Budget surpluses have occasionally allowed for a large portion of that debt to be paid back, but it has never been paid off. Even when it has been mostly paid off, a war usually ensued that rapidly escalated the debt back to a high level. For a recent picture of the debt, here's an image showing it since 1940, with a sharp increase right at the start due to WWII.



Since the United States is still involved with two wars and also invests a significant amount of money into combating worldwide terrorism, it doesn't seem out of place for there to be significant government debt right now. Perhaps once President Obama's withdrawal plan for Afghanistan is completed it will be possible for the debt to be reduced significantly. Wars are expensive, so it shouldn't be a surprise to anyone that the debt has kept increasing.


Military supplies brought to you courtesy of the national debt.

The addition of revenue loss due to the large tax cuts passed during the last decade basically guaranteed that the national debt was going to be quite large. With the description of the current situation out of the way, let's look at the inner workings of a balanced budget plan for the government.

How a Balanced Budget Amendment Works
Fortunately, it's easy to see how a balanced budget amendment works since most states have one in place. They force the state's legislature to make up for any budget shortfalls each year by reducing spending or increasing taxes to ensure that the state does not fall into debt. There isn't much tolerance for increases in taxes lately in the U.S. so states have had to rely on spending cuts in order to meet their balanced budgets. This has resulted in layoffs of state employees and deep cuts in spending due to falling tax revenues stemming from economic turmoil from the recession. Although this has been painful for vulnerable segments of society that are reliant on state programs for support, state spending cuts typically are not that noticeable for citizens who can support themselves financially. Unfortunately, that would probably not be the case for federal spending cuts.

State vs. Federal Balanced Budget Amendments
The biggest reason that state spending cuts are not all that noticeable for most of the population is that a lot of the most important spending, such as Defense, Medicare, and Social Security, takes place at a federal level. The federal government also gives a lot of money to states to fund education and other state programs. So, even if Maryland decided to not spend any money for a year, they would not be vulnerable to foreign invasion since they're still protected by the national military and some services, particularly those directed toward the elderly, would still be provided courtesy of federal spending. Additionally, while it would be painful for residents of Maryland, the rest of the country would likely not even notice.

In comparison, if the federal government needed to cut back on spending suddenly, the entire country would feel the impact. The federal government spends trillions of dollars each year, including billions of dollars that go to each state in the union. The problem with a balanced budget amendment is that the federal government responds to major challenges for the country.


Such as this, for example.

So, if something like Pearl Harbor were to occur today, the states are not responsible for the response to it. It's the federal government that has to rebuild the Pacific fleet and create a military capable of fighting in Asia and Europe. This is why it's acceptable for states to have balanced budget amendments, they are not the level of government that responds to large-scale disasters. Even with major floods and hurricanes, it's the federal government that provides the bulk of the money for rebuilding efforts.

One important point to bring up is that proponents of balanced budget amendments do typically allow for an exception to be made in times of war and national emergency. Congress would be able to vote for a time of national emergency to be declared so that the need for a balanced budget could be ignored for a few years while the war or whatever is resolved. However, the current political environment in Washington shows that it may not be possible for Congress to agree on whether the country is in a major emergency or not. Earlier this year, Republicans and Democrats could not even come to agreement on raising the federal debt limit, even with months of warning, resulting in the United State's credit rating being reduced for the first time. Compromise just seems to be impossible in the government right now, so I wouldn't count on the political parties putting aside their differences to allow a little matter like a major war to determine that the balanced budget needs to be ignored for a year or two.


Particularly when some members of government point to federal spending as being a worse enemy than the Nazis.

The Potential Consequences of a Balanced Budget Amendment
So, let's say the worst case scenario of a major war or other unanticipated and extremely expensive disaster occurs and Congress doesn't agree to lift the balanced budget requirement to deal with the problem. Let's use the example of the wars in Iraq/Afghanistan as a new budget issue. They have cost around $3.7 trillion so far. That number is as large as the entire yearly U.S. budget! Now, that cost has to be spread over 10 years of budgets, but that's still a hell of a large unanticipated expense. Well, here's the budget:


What do you want to cut out?

Basically, no matter what part of the budget you want to cut, it will be a hell of a painful cost for the country. Perhaps that's part of the point of a balanced budget amendment, it makes for some really hard decisions that maybe the United States should have to make. But still, do you really want those decisions to have to be made while we're in the middle of a national disaster? In this instance, I think Rick Perry and other supporters are a little off the mark in what needs to be done to fix the U.S. budget. Yes, it needs to be reduced, but it should not be forced in this manner.


Without a serious discussion on the budget, we may end up not aiming at the right parts to cut.

Why Compromise is Impossible in Washington

Thanks to the political gridlock in Congress, the United States credit rating was downgraded by one of the credit ratings agencies for the first time in history. The most appalling part of this debacle is that it seems like a deal should have been made many months before the one finally passed on August 2nd. As I mentioned in a previous post, it would seem that the most obvious solution would have been to raise some revenues and also cut spending significantly. This solution doesn't give either party everything they want, but it is the only way to try and reduce the deficit without cutting spending, which does improve economic growth and protect vulnerable populations, to the point of crippling the federal government completely.

Instead of having this type of logical discussion and making a long-term solution, Congress chose to make ultimatums for weeks on end and eventually pass a half-assed plan that, if nothing else, did at least cut spending a little and raise the debt ceiling. It will also require both parties to have this same discussion in a couple years when the second round of deficit reduction occurs.


Delay is also known as success in politics.

This brings up the question, why does it seem like no one is willing to compromise at all in the federal government?

Requirements for a Compromise
Whenever people or groups disagree on what they want, a negotiation has to occur in order for a deal to occur. In order for a successful negotiation to take place, there has to be some overlap in goals, otherwise a compromise will not occur.

Let's use the example of Bob wanting to purchase a car from Adam.


Adam seems like a reasonable fellow to deal with.

Bob can afford to spend $5,000 for a car at this point. Adam's car is priced at $7,000, but he is willing to go as low as $4,500. As you can see, there is overlap in the price ranges here so a sale can theoretically take place.


A successful negotiation is possible, the car may be sold to Bob.

Now, if you change that same scenario but instead make Bob only willing to spend $4,000, look at how the picture changes.


No overlap here, a deal cannot be reached.

The problem is that the current Washington environment is the latter scenario. Both parties agree that spending cuts need to occur, to defense, social spending, and many other areas. Where the parties are split is on the issue of revenue increases. The Republican party, particularly the Tea Party faction, is completely unwilling to consider tax increases of any sort, even those caused simply by removing loopholes in the tax system. The problem is that so many Republicans have signed pledges with Grover Norquist's Americans For Tax Reform group stating that they will never ever vote to raise taxes in any way that they are left with no room to negotiate on the budget. If they choose to negotiate, they are harshly criticized by Norquist's group, which seems to have a great deal of power with the conservative base of the Republican party.

So, here's the image of the possible negotiation options for revenue increases right now:



It's enough to make you need a cigarette.

The Consequences of a Smaller Government

In the ongoing US budget discussions, one issue that does not seem to be addressed often is what the actual consequences of a smaller government presence will be for citizens. The main arguments are about taxes, social security, medicare, and other large budget issues for the federal government. However, federal budget reductions will also result in a smaller state and local government, as a lot of discretionary spending that seems likely to be axed is given to these groups. With the current anti-tax rhetoric spewed by people like Grover Norquist, it seems unlikely that extra local taxes will be approved to maintain services in most areas. So, what happens when government is "small enough to strangle in a bathtub?"


Die government!

Well, one example is that over the last couple of months in my city the public safety budget has been targeted for reductions. A few police officer positions were removed and the fire department has been reduced in size as well. A few people complained about this, but for the most part people were willing to let it go instead of having to pay higher taxes.


Maybe the government would have more success with tax hikes if they hired a nicer guy to implement them.

Unfortunately, last weekend five sexual assaults took place, including two rapes. The immediate reaction, of course, was that the reduction to the public safety budget was a terrible idea and the money should have been taken from somewhere else. The problem is that there is nowhere else to take this money from-there just isn't very much discretionary spending left in most budgets. Almost every state and local government has been facing budget issues for years now, there isn't any fat left to trim.


The four or five old guys have retired, everyone else is kind of important.

For another example, almost every government agency that I've been to has a ridiculously long line. Getting the title transferred on my car takes about one to two minutes of actual work, but it took about two hours due to the government office that I had to go to only having four employees to handle dozens of people. As it seems likely that more employees are going to be laid off or not replaced when they retire, the problem is only going to get worse. Maybe I need to order a pizza next time I need to get my driver's license renewed.


Looks like Mr. Norquist would like one too.

Conclusion
It's easy to say that government should be smaller. After all, it saves you money in taxes. The problem is that a smaller government means that when YOU need help you're not going to be able to get it. After all, one man's lifesaving government service is another man's discretionary spending.


What? You want a fire department? What kind of wimp are you!

The US Budget Discussion and Your Taxes

I felt this would be an appropriate topic given all of the ongoing federal discussions regarding what changes need to be made to the federal budget in order for an increase in the national debt ceiling to be approved by Congress and the President.


Discussing the federal budget is one of those topics that always brings members of both parties closer together.

I've heard many suggestions from people on the internet and in person on where budget cuts should be made. We should stop funding Pakistan. We should stop all foreign aid. We should pull out of Iraq and Afghanistan completely. We should cut spending all over the place but also not increase taxes at all. All of Congress should not take salaries and lose all their benefits until the budget is resolved and social security is saved. Maybe some of these suggestions would be logical, the problem is that I've never heard the people proposing them actually give any numbers on how much money these cuts would save.

Fortunately, I found a website, Third Way, that let's one see how much money the government spends on each of these areas and many more. Below are screenshots that are a summation of spending on each area of the budget:




Looking at the actual numbers, one can see how silly a lot of the easy budget cut proposals really are. Foreign aid sounds like a logical area to cut, after all if we can't afford to keep our own country running why should we be paying for Pakistan? Unfortunately, foreign aid is only 0.6% of the total budget and thus even completely cancelling all aid would not help much to resolve the problem. It would also have some consequences that I don't think most people who propose this consider. Foreign aid is one way that the United States, which, like it or not, is a leading power in the world, holds prestige and stature in the world. Cutting all of our foreign aid would make many countries unhappy with us, potentially resulting in losses of trade and influence throughout the world.

Stopping the wars in Afghanistan and Libya and cutting our remaining aid to Iraq is another popular solution. This is a somewhat fair point, as active combat operations take up around 5% of the total budget, or 25% of the total defense budget. However, it's not possible to just get up and leave without leaving a potential disaster behind. Additionally, it would be quite harmful to America's image in the world if we pulled out and the countries went to hell a couple weeks later. Besides, Barack Obama has already made progress with a withdrawal of most combat troops from Iraq and a scheduled withdrawal from Afghanistan. This proposal is rapidly becoming a moot point, we'll be out soon anyway, it's not going to help with the budget discussion.

As for Libya, it's a relatively minor commitment of US military power that probably won't cost more than a few billion dollars at the maximum. Sadly, that's almost nothing to the defense budget.


The rough equivalent of you throwing a couple staples in a trash can to the Pentagon's budget.

The common call for Congress to fuck off and give up their salaries and benefits, although understandable, also would have no impact on the budget. Congress's total cost is 0.2% of the federal budget and the largest portion of that is for the Library of Congress.

So with these easy decisions off the table because they won't help, what's left? Unfortunately, there are no easy, pain-free ways to solve the problem. The largest five categories of the budget are social security, defense, medicare, low-income assistance, and medicaid. Cutting any of these is obviously problematic, as they will affect the ability of the elderly to retire and reduce already low fixed incomes, affect national security, and potentially leave many without healthcare. The other option would be to increase revenues, most likely through a tax increase of some sort.

This leaves two main proposals by the Democrats and the Republicans. The Democrats http://www.blogger.com/img/blank.gifhave offered to reduce spending in many areas in exchange for some tax increases achieved through removing loopholes that many wealthy individuals use to avoid paying high tax rates. The Republican proposal, stimulated by some of the Tea Party representatives, is much less balanced; no tax increases allowed, fix the budget through spending cuts alone. Additionally, although Democrats have been willing to compromise, the Republicans seem much less willing to allow any ground on tax reform.

It is instructive to look at the state of Minnesota, whose state government is currently shutdown due to budget deadlock, to see why the Republican no compromise stance is problematic. If you're unfamiliar with this issue,


and Governor Dayton would prefer that you not be familiar with this issue,

here's an article summarizing the problem.

Essentially, the Republicans refuse to allow any income tax increase proposals while the Democrats refuse to pass a budget that would require harsh spending cuts to the Minnesota budget that would gut a lot of departments. The current result is that Minnesota has 22,000 state workers laid off for a few weeks now and has lost millions in state revenues http://www.blogger.com/img/blank.gifdue to closed state parks, the lottery being closed, and other productivity costs. The state's credit rating also took a hit due to this situation, going from AAA to AA+, meaning that any borrowed money will have a higher interest rate in the future. I'm sure that will help with the budget problem a lot.

Although I don't think the Republicans are going to let the same thing happen in the national government, as common sense would hopefully suggest that it's not a great idea to hurt the United State's credit worthiness for a Pyrrhic victory, it does indicate a problem in the government that more and more Americans are noticing. The GOP's polls have worsened due to the budget discussions as it becomes obvious that the Republicans aren't looking for a compromise but are instead seeking an ultimatum-budget cuts and nothing else or the United States has to default.

This is a juvenile move because the cuts that would be needed to balance the budget would have to come from those budget categories mentioned earlier-meaning that they would have a huge negative effect on senior citizens, national security, and the unemployed and extremely ill. The only logical course of action, even if it's still unpalatable, is to increase revenues and cut spending. This allows for the cuts to not be draconian while still setting the United States budget up for the future so that we don't have to have this discussion again in five years.

My fear is that Congress and the President will end up making a compromise like what looks to be happening in Minnesota. Instead of actually fixing Minnesota's budget problems, the compromise is that future revenues will be used now so that the state government can resume operation. While that's nice in some ways, it means that the government might shutdown again in a year or two when that money runs out.

So what can you do? Well, tell your senator or representative that you aren't going to stand for a half-assed compromise for the budget and instead go for a long term solution to the U.S. budget. Yes, it won't be pleasant for either party, but it will be a hell of a lot better than setting the country up for a worse budget crisis in a few years when the compromise money runs out.

That also reminds me, another proposal a lot of people have come up with is to not pay their taxes until the government stops screwing up. That's not a great idea, as one notable actor discovered recently. Pay your taxes.


Even vampires couldn't stop Wesley Snipes, but the IRS managed to do it.