Tuesday, November 1, 2011

Balanced Budget Amendment say whaaaat?

I remember coming across the above video during my undergraduate studies. It changed the way I thought about personal finance, and cause me to seriously rethink my entire approach to money. This was in direct contrast to how my mother ran our household, which was by shuffling money and bill due dates until they could all be paid. Bills were sometimes deliquent, and other times they were paid in full, but the type of financial management system that my mother employed could be called a deficit spending model. When I developed an interest in public policy and government, I wondered often why the federal govenment couldn't just pay off our debt and put the country on a "lean times" economic plan until we were able to afford all of our pressing national expenditures. Now I know why we can't.

America has had a national debt since its formation, with us being founded on numerous wars. Since then, the national debt has only increased, capping out last month at around 14 trillion (There's a useful online application if you want the actual day-to-day numbers), which had cause the United States to continue operating in a deficit, complete with deficit spending. During President George W. Bush's term, and the war on terror instituted during it, deficit spending was a necessity. The country was at war, with much of the country's revenue going to defense. It's hard to argue against defense spending at any time, even while decrying defecit spending.

This is one of the caveats to a balanced budget amendent. A balanced budget amendment forces a country (in this case, ours) to pass a budget that doesn't call for more spending than income. Balanced budget amendments come loaded with many loopholes, the most glaring of which is the concession that wartime spending is exempt from the rules. Additionally, most recent balanced budget amendments require a majority or supermajority to increase taxes and only recent ones have required a spending cap, a completely ineffective spending cap that proposes cuts too large for any government to reasonbly make without a national conversion asceticism. A wealth of other bypass options exist as well, and it would seem that a balanced budged amendment would be an ineffective means of balancing the federal budget and putting us on the road to debt repayment.

However, with a few modifications, I believe a balanced budget amendment would work. The first would be to require a less extreme amount of congressional support to raise taxes, preferably just a majority. Taxing everyone including the top 2% of earners is one of the keys to revenue. The second is to cap federal spending at a reasonable amount. We need to make spending cuts where they're needed most. And the third, probably most difficult modification: to ensure that congress or anyone else cannot declare the United States in a perpetual national emergency or wartime, in order to ensure that the balanced budget amendment can have a tangible effect.

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