How about a usually-balanced budget amendment?

Bronze Coast, Alameda , CA
California US

Just thinking out loud here for a moment. I’m sure that any flaws in my logic will be pointed out in the comments.

My only problem with a balanced budget amendment is that times of economic downturn could be the worst time to cut back spending. I’m not going to go full keynesian and say that if the economy shrinks that it’s time to increase spending, but I will concede that cutting back at those times is likely to be counterproductive.

So here’s my proposal: an amendment that requires the spending in the Federal Government to be matched by revenue unless revenue has (in real dollar values, not adjusted for inflation) dropped since the previous year, in which case spending must be capped at the level of revenue from the previous year (or perhaps the last year before the downturn in revenue if there are two years in a row where real-dollar revenues drop.)

Actual real-dollar revenues don’t drop very often anyway, so it would end up being pretty darn close to a balanced budget amendment. It would limit borrowing to the time of actual recession while still putting a brake on borrowing and spending (though not on taxing and spending.) It would also be closer to in line with what Keynes actually suggested: allow moderate borrowing to be paid back at the end of the downturn.

Probably more important even than a balanced budget amendment would be a debt repayment amendment requiring, in years when real-dollar revenues increase that that increase goes to repay 1% of the debt prior to allocating any funds to an increase in non-debt spending.

For example: in 2016 revenue is $4 trillion, budget (thanks to the above BBA and to make math easier) is $4 trillion, and the Federal debt is $20 trillion. in 2017 revenue is $4.3 trillion. $200 billion would have to be allocated to debt reduction before any other budgetary spending increases. Congress would still have $100 billion extra to play with.

However, if revenues only increase from $4 trillion to $4.1 trillion, there would be zero budgetary spending increase (though also no mandatory decrease) and $100 billion would go to debt repayment.

These policies would make inflationary policies less appealing to politicians, which would decrease the effects of the hidden tax on everyone’s savings while also forcing politicians to make choices that grow the economy, because real growth will be the only way they get more money to play with. This is JFK-style liberalism: JFK pushed for lowered taxes because he wanted more tax revenue so that there would be more in the government coffers to spend on social programs.

Whatever anyone’s problems with Federal Government spending are, I hope everyone can agree that grow-and-spend is better than either tax-and-spend or borrow-and-spend.

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Comments

Steve,


I agree with the possible need for deficit spending under certain conditions. WWII, for example. My solution, rather than requiring any specific spending amounts, would be for any spending beyond the revenue be approved by a 2/3 majority in both Houses. That could only happen if the need was serious, and if the need was that serious one would not want the government constrained.


I believe ALL of any surplus should go to debt reduction. Our huge deficit puts future generations at significant risk. I am old enough that it probably won't impact me seriously (I hope!) but somebody is going to have to pay off that debt somehow and it is going to hurt somebody. Maybe not my generation, possibly not yours, but someday....


Dad