Thursday, July 7, 2011

Balanced Budget Amendment

Will a law requiring a balanced budget a balanced budget make?

Tea Party advocates are pressing for the United States to pass a "Balanced Budget Amendment", a move which would coerce the United States Congress to live within its means.

Yet is such a mechanism really effective at curbing spending and keeping the government out of debt? The State of California is required to balance the budget every year, yet legislators finesse the numbers with optimistic revenue projections and borrowing to make ends meet. Within weeks, the projections fail in the wake of tax shortfalls. Inevitably, debts and deficits continue to menace the Golden State. Once more time, lawmakers have to scramble again to make up for the lack caused by sudden downturns in revenue.

Governor Brown and his legislators have crowed that they have signed into law the second budget on-time in so many years. This dysfunctional self-congratulation cannot paper over the more glaring inability for the legislators to pass a budget on time. In recent years, the California legislature passed a budget 100+ days after the dead-line, a sluggish outcome which impoverished state agencies and held independent contractors hostage, while the State Controller had to resort to handing out IOUs. Imagine the fiscal fallout in the United States if Congress delayed indefinitely the passing of a balanced budget because they were trying to muster a balanced spending plan with cuts and revenue increases? Would contracts throughout the nation be content with more fiat currency while U.S. legislators were stalling on settling differences? The risks are far greater, and far too great, for the nation as a whole.

Instead of requiring a Balanced Budget Amendment, why not insist on some mechanism which will automatically deduct spending from certain entitlements when appropriations exceed the limits of the annual budget?

If Congress ties these cuts to politically neutral entitlements, like corporate welfare and industrial subsidies, then Congress would have a buffer to make the necessary cuts with spending increases.

No comments:

Post a Comment