Congress is about to commit another act of fiscal stupidity

Robert Kuttner

May 08, 1992|By Robert Kuttner

CONGRESS is on the verge of committing one more act of fiscal stupidity that would deplete what is left of public confidence in its judgment. Congress will soon take up a proposed amendment to the Constitution requiring the federal government to run a balanced budget.

This idea, which has languished for more than a decade, has suddenly acquired new life because many members of Congress, stung by the House bank scandal, are looking for some symbol to signify fiscal prudence. But a constitutional balanced-budget amendment would signal the ultimate fiscal default.

For one thing, if Congress has been unable to muster the political will to get the deficit under control, either through ordinary taxing and spending measures, or even through mechanical gimmicks like the Gramm-Rudman amendment, there is no magic in putting budget balance into the Constitution. Either way, if Congress wants budget balance, Congress ultimately has to decide what programs to cut and what taxes to raise.

If such an amendment were in force this year, Congress would suddenly have to take about $350 billion out of public spending or increase taxes by a like amount. Today's recession would be nothing compared with the depression that would result from that kind of economic contraction. The likely alternative would be another layer of gimmickry and subterfuge, bringing even further discredit upon Congress and the budgetary process.

Moreover, under the proposed amendment, only a super-majority of 60 percent of both houses could waive the requirement, except in case of war. If a simple majority of legislators can't agree on a suitable budget under normal circumstances, what hope is there of constructing a super-majority during an emergency?

This is not only a political abdication. It is foolish economics. While the current deficit -- about 6 percent of gross national product -- is excessive, most economists agree that mild deficits are tonic for the economy.

Some of the money the government borrows goes to finance public investment. This is a reasonable use of public debt. During the boom years after World War II, the government typically ran modest deficits of 1 percent or 2 percent of GNP, and these deficits also stimulated purchasing power and helped engender economic growth.

For nearly four decades after the war, the economy grew faster than the national debt. It was only when Reaganomics failed to deliver the economic miracle promised by supply-side tax cuts that the deficit spun out of control.

Last March, 100 prominent economists signed a public letter advising that restoring investment, both public and private, was the necessary ingredient to stimulating a recovery, and that deficit reduction should be the long-term goal, not the short term instrument of shock therapy.

Even many liberals have begun supporting the proposed constitutional amendment, whether out of desperation or cynicism. Sen. Paul Simon, D-Ill., ordinarily on the left wing of the Senate, is one of the amendment's key backers. Recently, Simon persuaded Sen. Joseph Biden of Delaware, who chairs the Judiciary Committee, to allow the bill to come to the Senate floor. Other liberal supporters include Sens. Jeff Bingaman, D-N.M., Kent Conrad, D-N.D., Tom Daschle, D-S.D. and Al Gore, D-Tenn.

In the House, the amendment has been bottled up in subcommittee, but its leading sponsor, conservative Democrat Charles Stenholm of Texas, has circulated a discharge petition demanding floor action, which has now been signed by 268 House members, a comfortable majority.

Speaker Tom Foley, who bungled the check-kiting scandal, has unwittingly encouraged the balanced-budget movement by telling colleagues that he opposes the amendment but doubts it can be stopped. Many Democrats have cynically signed on, hoping to buy fiscal credibility with their constituents. Mr. Stenholm has delayed pressing his discharge petition in the House until the Senate votes, sometime later this month.

In all likelihood, the only thing that can stop the amendment is a very close vote in the Senate. A preliminary head count suggests that the amendment will be decided by fewer than five votes one way or the other.

In case you wonder what happened to the Gramm-Rudman amendment, it was unceremoniously mooted by the 1990 budget summit. Gramm-Rudman set annual targets for deficit reduction. The 1990 budget agreement changed the formula to set limits on the growth of government expenditures. But the budget agreement was thwarted by the recession, which caused revenues to grow more slowly than forecast, increasing the deficit.

Of course, tax receipts always drop in a recession, because personal and corporate income shrink during hard times. That's precisely why a mechanical requirement for budget balance is such a bad idea: It socks the economy when it's down.

Bouncing a few checks is a mild indiscretion compared to willful and cynical stupidity. The Constitution is nothing to trifle with.

At a time the deficit is completely out of control and Congress lacks the will to either raise taxes or cut spending, a constitutional budget-balance amendment is not just a confession of political bankruptcy. It could help push the country into actual bankruptcy -- which will hardly repair the good name of Congress with the voters.

Robert Kuttner writes regularly on economic matters.

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