Reopening the case for a balanced budget amendment

The ten-year outlook in President Obama’s budget for fiscal year 2016 is not something you want to read before going to bed. It is virtually a fiscal nightmare: federal government spending is expected to increase by 4.4 percent per year.  By 2025 federal spending will exceed 22 percent of GDP, compared to just over 20 percent today.

This nightmare also comes with its own scary monsters. In order to pay for its endless expansion of government, the Obama budget adds $4.7 trillion to the federal debt over ten years. 

{mosads}Borrowed money pays for eleven cents of every dollar spent.

Inevitably, a debt crisis is coming. We know it will happen – the only uncertain thing about it is to forecast when it will happen. Practically no economist was able to predict the unfolding of the current European government debt crisis. On the contrary, many forecasts were still predicting “business as usual” as late as in 2007. 

It is just as difficult to say when the U.S. debt becomes an acute crisis. All we know is that the crisis will come. That is as certain as an earthquake in California. And that makes the Obama budget all the more irresponsible. 

Fortunately, there are some encouraging signs of fledgling fiscal responsibility in Congress. The GOP budget for 2016 slowly reduces the deficit over nine years and balances the budget by 2025. This is a welcome change for the better. 

There is just one caveat. The GOP budget won’t become actual policy unless the Republicans win the next five Congressional elections and the next three presidential elections.

We need a better insurance policy against the looming debt earthquake.

It is time to reopen the case for a balanced budget amendment to the constitution. In March, fourteen members of the House saw just that and took action. With Representative Gosar (R-Ariz.) at the helm they submitted House Concurrent Resolution 26 in support of a new, innovative form of balanced-budget amendment. Called the Compact BBA, it shifts focus from the deficit to the debt. Today, Congress can – essentially – raise the debt limit at its own discretion. Under the Compact BBA Congress would need approval from a majority of states to raise the debt limit.

The states effectively become cosigners of the federal debt. 

Another innovative feature of the Compact BBA is that it lets Congress run the year-to-year budget process as it sees fit. It only kicks in when Congress has borrowed itself up to the debt limit. Think of it as a computer virus protection program: under normal circumstances nobody will have any reason to even think about it.

The Compact BBA is an ideal combination of a strict cap on the federal debt and incentives toward a balanced budget. So far, there is no support for the BBA in the Senate, but that will hopefully change soon. The fiscal future for the federal government is grim at best: the deficit is projected to start increasing again within a year or two. With shifting majorities, spur-of-the-moment politics will get in the way of sustainable solutions. 
It is often said that Congress cannot balance the budget without destructive cuts to major entitlement programs, and therefore it is better to run up more debt. In reality, the biggest threat to entitlement programs is a runaway debt, with repayment obligations in the name of our children and grandchildren. 

In House Concurrent Resolution 26 Congress has a golden opportunity to speed up the process toward a realistic, fully functioning balanced budget amendment. House members are taking their fair share of the responsibility for this amendment; it is time for our Senators to do the same. 

If they drop this ball, it will fall on the toes of our children and grandchildren. When the debt crisis explodes global investors will dictate U.S. fiscal policy. Coming generations will have to spend their tax dollars on repaying our debt – instead of on entitlement programs.

Larson is an economist and member of the Council of Scholars, Compact for America Educational Foundation. He can be reached at  


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