The Balanced Budget Trap

Popular

wisdom has it that the Contract with America is defunct, killed by the

excesses of Newt Gingrich and his extremist band of Republican freshmen.

The Contract is certainly dead as a campaign manifesto, but its single

most damaging provision is lethally alive. The balanced budget amendment

failed the Senate by only one vote in March 1995, and two votes in June

1996. Earlier, in 1995, it passed easily in the House of Representatives

(300 to 116). A return engagement is likely after the November election.

Even if Democrats pick up seats, the amendment could pass, because many

Democratic candidates have felt the need to embrace budget balance as "cover"

to insulate themselves from the tax-and-spend label. In January, we could

well encounter a Congress more Democratic—yet more likely to approve an

amendment crippling to an activist view of government. Normally, the ratification

process, which requires 38 states to concur, would slow any ill-considered

amendment. However, in the case of the balanced budget amendment, a large

majority of state legislatures are poised for a quick ratification without

even a hearing.

The amendment would fundamentally alter the rules of fiscal policymaking.

Federal revenues and expenditures would have to be balanced each fiscal

year. Any tax increase would require a majority vote of the full membership,

not an ordinary quorum, in both houses. Budget reductions, by contrast,

could be passed with traditional majority votes. In essence, the amendment

embeds a "starve the beast" ideology in the Constitution and

provides a continuous impetus for spending cuts.

Short of an overwhelming consensus (three-fifths of all members, both

houses) to suspend the amendment's provisions, deficit spending would be

prohibited whether the economy is growing, stagnating, or in serious recession.

The federal fiscal role as "automatic stabilizer" would end,

along with countercyclical aid, leaving many of those hurt by recession

not only out of a job but out of assistance.

In economic downturns, revenues fall and demands for transfer payments

go up. This requires a temporary increase in deficit spending. But with

constitutionally mandated budget balance, the fiscal stabilizer role goes

into reverse. Faced with revenue shortfalls in a weak economy, the federal

government must raise taxes or cut spending to balance its books—both

of which serve to deepen rather than moderate recessions.

The

next time around, liberals may make a last fiscal stand in opposition to

the amendment. But that would be too narrow a stance. For if absolute budget

balance is bad constitutional policy, it is bad fiscal policy, too. And

by attempting to argue that ordinary budget balance is virtuous while a

constitutional amendment is excessive, well-intentioned Democrats only

lend credence to both.


DITHERING DEMOCRATS

It is tempting to see the balanced budget amendment simply as a Republican

ploy to continue the relentless ratcheting back of government. In a sense,

this is the continuing legacy of Reaganomics, a cycle in which conservatives

cut taxes, increase defense spending, incur chronic deficits, rack up debt—and

then argue that government spending is out of control and must be stopped

with constitutional limits. This formula is indeed deadly for traditional

Democratic programmatic activism. However, no fewer than 14 Democratic

Senators voted for the amendment last June, including 3 of the Senate's

more liberal members, Joseph Biden, Tom Harkin, and Carol Moseley-Braun.

Another liberal Democrat voting in favor, retiring Senator Paul Simon,

is one of the chief architects of the current version, which he crafted

with Republican Senators Orrin Hatch, Bob Dole, and Dennis DeConcini. A

few liberals, notably Simon, think budget balance would compel tax increases,

as people appreciated that valued programs were on the chopping block.

This view, while at least principled rather than expedient, is both politically

shortsighted and fiscally excessive. Without Democratic support, the amendment

would be a nonstarter.

During this election cycle, numerous Democratic candidates have jumped

on the balance bandwagon. The Senate is the crucial arena, given the wide

differential in the House amendment vote. Democratic Senate candidates

considered generally liberal who now support the amendment include former

Maine Governor Joe Brennan and New Jersey Congressman Robert Torricelli.

Even labor-backed congressional candidates contesting freshman Republicans

have been advised: "Don't challenge balance." This may be smart

tactical advice in the face of polls indicating overwhelming popular support

for balanced budgets. However, the same voters don't want cuts in cherished

programs. In the long term the cost of this tactic is devastating. Critically

important distinctions between deficit reduction strategies, balanced budgets,

and the permanent elimination of deficit spending are being lost. Democrats,

including many liberals, are undermining the basis of their philosophy

of governance.



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Unfortunately, chief among these Democrats is their president. Last

spring, Clinton agreed to a seven-, now six-, year path to balancing the

federal budget by 2002. At the time, Clinton's reversal startled his closest

aides, including Chief of Staff Leon Panetta and Office of Management and

Budget Director Alice

Rivlin, both deficit hawks. In the wake of Dick Morris's hasty departure,

press reports confirmed that the sometime Republican Morris was the key

influence urging budget balance on Clinton, who was already angry that

voters gave him no credit for reducing the deficit.

Clinton does oppose (quietly) the constitutional amendment, but has

failed to articulate why he supports legislative but not constitutional

balance. With Clinton's support for balance, the distinction eludes most

voters and the logic becomes: If balancing the budget is "good"

(as both parties apparently agree) and politicians have trouble delivering

on the promise, then why not lock the requirement into the Constitution?

In fact, absolute budget balance as a fiscal principle is bad, and a

constitutional requirement for balance is rigidly worse. The case for budget

balance is built in part on two popular but misleading analogies—state

governments and household budgets. The structure of state finance is fundamentally

different from that of the federal government, and even those states with

stringent balancing requirements are able to borrow for a variety of purposes.

The household analogy is even sillier. Few of us buy homes or send children

to college out of our annual operating budgets.

The arguments against constitutional budget balance boil down to these:

First, as a matter of macroeconomics, precise balance would be a perverse

cure for America's relatively mild deficit and debt problem. Secondly,

the amendment, in the present fiscal context, would be devastating to state

and local finance. Third, it would bring the courts into day-to-day budgetary

decisions, leading to an infinite regress of necessary deceptions, judicial

prohibitions, and countermoves. The text "prohibits the Federal judiciary

from hearing cases or pronouncing opinions on any cases or controversies

arising under this joint resolution, except as authorized by subsequent

legislation," but it is hard to imagine that subterfuges would not

be litigated. The provisions governing how an emergency suspension would

operate are poorly drafted, and would invite further litigation. And finally,

as a matter of politics, the amendment would complete the paralysis of

activist government, the public philosophy that has distinguished modern

liberals from conservatives.


MACRO FANTASIES

Advocates for the amendment contend that the elimination of deficits

will broadly increase prosperity and remove a debt burden that menaces

future generations. The economic logic, supposedly, is this: Eliminating

the deficit will increase the national saving rate and will lower interest

costs, raising rates of investment and productivity—and hence living standards.

A key concept here is "crowding out." When government borrows

money to finance deficits, it taps private savings and competes for capital

that could be used more productively in the private sector. Hence, if the

deficit is brought down, interest rates will come down, capital will be

freed for investment, and the economy will grow faster. What's wrong with

this argument?

For one thing, within broad limits there is no precise relationship

between deficits, interest rates, savings, investment, and growth. Private

saving can finance productive investment, but so can public borrowing.

The United States came out of World War II with a ratio of debt to gross

domestic product more than double the current one—and 20 years of unprecedented

growth followed. The worst interest rate crisis of the postwar era, in

the late 1970s, occurred when the debt-to-GDP ratio was near a postwar

low. In the recent period of relatively high debt, since 1990, interest

rates have steadily fallen. There is simply no precise relationship between

economic growth and deficit spending, or between deficit spending and interest

rates, nor is there agreement among economists on the appropriate ratio

of debt to GDP.

At some extreme, year after year of deficits would be fiscally unsustainable.

The debt trebled in the 1980s because the federal budget deficit was growing

faster than the economy for several consecutive years. The consequence

was an excessive growth in the ratio of debt to GDP, from under 30 percent

when Jimmy Carter left office to over 50 percent in George Bush's last

year. Moreover, most of that debt went to finance current public spending,

not public investment.

But to remedy this trend, we don't need to bring the deficit to zero.

We need only keep the annual increment added to the national debt—the

amount added by the annual deficit—below the rate of real economic growth.

For example, if the economy grows at 3 percent a year, and the deficit

is 2 percent of GDP, then the all-important debt-to-GDP ratio declines

by one point every year. The difference between absolute budget balance

and a deficit of 2 percent of GDP is about $160 billion a year of public

outlay. It is the difference between massive cuts in public spending and

the capacity to address national problems with public dollars. It is the

difference between a liberal and a conservative view of fiscal policy.

But with both parties committed to budget balance, and neither prepared

to back tax increases, that difference collapses.

Ironically, the Clinton administration to date has followed the course

of getting deficits below the rate of economic growth, but not getting

them all the way to zero. The Congressional Budget Office projects that

the current-year deficit will drop to its lowest level since the Carter

administration, 1.9 percent of GDP, or well below the trend rate of economic

growth. This course has been sufficient to allow the Federal Reserve Board

to keep interest rates low.

Arguments over investment lie at the heart of our current economic and

budget battles. The adjective "productive" usually precedes private

investment, while the adjective "wasteful" often modifies public

investment. Robert Eisner, past president of the American Economic Association,

observes that "Most non-ideologues" recognize public investment

"as at least an equal contributor to productivity and hence growth."

If you really care about the next generation, Eisner says, "Cutting

expenditures for children, for Head Start, primary and secondary education,

loans to college students, health, basic research, our physical infrastructure

and protection of our natural resources and environment of land, water

and air, are precisely what will hurt our future."


STATES AS EXEMPLARS

Advocates have a ready answer to this caution. They point to the states,

most of which have constitutional requirements to balance their budgets,

as evidence that an amendment is both feasible and necessary. But most

states distinguish between annual operating (general fund) expenditures

and capital budgets that finance major public works through debt financing.

Capital budgets generally are excluded from state balancing requirements.

The federal government has no capital budget. The balanced budget amendment

would force future public investment to be paid for with annual operating

funds, on a pay-as-you-go basis. Few economists, even conservative ones,

object to debt financing at the state level. But there is no companion

proposal for a federal capital budget.

In addition to capital budgets, states have set up numerous "off-budget"

or special funds. Originally, such funds were financed by user fees earmarked

for specific purposes. The growth in the last two decades of special funds

has been tremendous, aided in part by liberal judicial interpretation of

earmarking, and has reduced state dependence on general funds. Nationwide,

the portion of state general fund spending in 1993 was 48 percent of all

state spending, ranging from a low of 21 percent (Wyoming) to a high of

74 percent (Hawaii). California, following a national pattern, saw special

fund spending rise from 13 percent of total state spending in fiscal year

1983-84 to 28 percent in fiscal year 1994-5. New York's levels are even

higher: In the last decade, special fund expenditures in that state grew

154 percent and now constitute 42 percent of total state spending.

Some special funds can incur debt. During the 1980s, Ohio borrowed over

$2 billion dollars from its Unemployment Trust Fund (now paid back with

interest), causing it to run a deficit every year between 1980 and 1987.

According to Frank Mauro, director of the Fiscal Policy Institute, the

state of New York routinely borrows from special funds in surplus to make

ends meet, This year, for example, the state borrowed $525 million from

the Medical Malpractice Reserve fund.

State balancing requirements vary widely in general, and may or may

not apply to special funds. But, at the very least, capital budgets and

special funds give states more flexibility than constitutional provisions

suggest, and infinitely greater flexibility than the balanced budget amendment

would give to the federal government. Even those states with fairly strict

constitutional provisions have run deficits, sometimes for several years

in a row.

Richard Briffault, a professor at Columbia University Law School, observes

that a significant source of state fiscal discipline lies not in legal

requirements or constitutional provisions but in the bond market. State

credit ratings "reflect investors' confidence in the ability of a

state to pay its debts," Briffault notes, and hence limit a state's

effective borrowing capacity.

Even in states with strict provisions or a political culture that strongly

supports budget balance, a plethora of accounting gimmicks have been devised

to reconcile flexibility with nominal budget balance. These include optimistic

economic forecasts, manipulation of fiscal periods, delayed payments to

creditors (including local government), underfunding public employee pension

funds, backdoor financing such as sale and leaseback schemes, refunding

outstanding bonds, and interfund transfers.

In a paper for the Twentieth Century Fund, "Balancing Acts: The

Reality Behind State Balanced Budget Requirements," Briffault found

these "fiscal slights of hand" were more likely to occur during

recessions, "as states struggled to deal with the fiscal consequences

of an unexpected economic downturn without drastically altering their spending

programs or their tax structures." The federal government is likely

to be at least as "creative." We have only to remember David

Stockman's "rosy scenarios" (fictional economic growth projections)

to imagine the possibilities, but this kind of creativity tends to feed

voter distrust and cynicism.

One reason

why states have averted devastating program cuts during recessions is,

of course, federal aid. In non-recessionary times, states receive anywhere

from one-fourth to one-third of their revenues from the federal government.

When the economy is in recession, various federal entitlement programs,

unemployment insurance, AFDC (until its recent repeal), food stamps, and

Medicaid automatically increase monies as caseloads rise. Jean Ross, executive

director of the California Budget Project, reports that federal dollars

as a percentage of total state spending increased from 29.5 percent in

fiscal year 1990-91 to 38 percent in 1993-1994.

In the state of Washington, unemployment reached 7.8 percent in the

1993 recession, well above the 7.2 percent national peak. According to

Jim McIntire, director of the Fiscal Policy Center at the University of

Washington, "Between 1991 and 1993, federal income assistance for

AFDC, SSI, and Food Stamps in Washington rose by 25 percent, or $142.4

million dollars, and 70 percent faster than the rate of total general fund

spending." After the recession, federal aid to the state of Washington

returned to a rate comparable with, or below, state spending growth. Josie

LaPlante, of Maine's Muskie Institute, describes Maine's recession as "massive

and tenacious." Between 1989 and 1992, federal expenditures grew by

58 percent. Maine's tax revenues, LaPlante reports, "bore a strong

resemblance to a bungee cord," expanding rapidly during "good

times" and contracting rapidly during bad times.

Under the balanced budget amendment, additional federal assistance to

states would not be automatically available but would depend on either

a national tax increase, requiring a roll call vote of a majority of all

members in each house, or cuts in non-safety net programs. While the override

provisions are murky, as McIntire and others point out, recessions are

increasingly regional. Drumming up supermajority support for deficit spending

from politicians whose states are unaffected is likely to be more difficult

than if the nation as a whole were affected. LaPlante emphasizes that Maine

received increased federal money before policymakers even knew the regional

economy was in a long-term trough.


THE REAL "NEW FEDERALISM"

If the amendment is draconian, even legislative balance by 2002 will

be austere in the extreme. Coupled with competition by both parties to

legislate additional tax cuts, balance by 2002 will require spending reductions

that range from $500 billion to well over $1 trillion, depending upon whose

plan is considered. Beyond 2002, the pressure for discretionary spending

cuts will continue, given increased costs in Medicare and Social Security.

With a constitutional amendment, the built-in deterrent to raising revenue

would only deepen spending cuts.

The Balanced Budget Act of 1996, which Clinton vetoed, called for roughly

$896 billion in spending reductions (cuts in entitlement programs plus

discretionary spending) over seven years, a compromise between Senate plans

and a House plan that called for even deeper cuts. Candidate Dole's election-year

balanced budget plan would cost over $1 trillion in spending cuts, according

to both the liberal Center on Budget and Policy Priorities and the conservative

Concord Coalition.

Virtually all congressional paths to balance are constrained by the

same realities. First, over half the federal budget remains "off the

table," immune from budget cuts, including defense spending, Social

Security, and interest on the debt. Last year, both the Clinton administration

and congressional Republicans sought increases in the military budget;

this year, the Republicans have added $13 billion to Clinton's request,

including a resurrected Star Wars program. [See Paget, "Can't

Touch This? The Pentagon's Budget Fortess," TAP, Fall 1995.]

With so much of the budget protected, spending cuts have to be taken

from the remaining (discretionary) portion of the budget. (Dole has added

Medicaid, Medicare, and veterans' benefits to the list of protected programs,

which leaves even less of the budget to cut.) The Center on Policy and

Budget Priorities estimated that roughly 30 percent of nondefense discretionary

spending ($225 billion in fiscal year 1995) flowed to the states. As a

practical matter, some discretionary programs-for example, the IRS or FBI-receive

greater protection than others. Therefore, cuts will not be evenly distributed,

and some programs will receive very large cuts.

Second, cuts are heavily backloaded: That is, the largest cuts are targeted

for the years closest to 2002. Neither party wants the enormity of the

cuts needed to achieve a balanced budget in neon lights. This practice

means that statistics depicting cuts in the next year or two, as well as

seven-year averages, are totally misleading. Spending reductions in the

years 2001 and 2002 are estimated to be 7 or 8 times greater than the effects

in the first and second years.

Thus, when you combine the protected portion of the federal budget,

the practice of backloading, and the retention of 2002 as the target year,

the effects, especially on states, become quite dramatic. Safety net and

other programs important to states, such as Medicare, Medicaid, and other

health programs, income support, and education, would have accounted for

a full 84 percent of the reductions in federal spending in the final year,

2002-stunning evidence that the cuts fall disproportionately on programs

serving the poor or needy.

While voters loosely support the broad principle of budget balance,

few have much appreciation of the relationship between federal and state

budgets. In many states, federal assistance is the largest single source

of revenue in the state budget. Some state programs receive little assistance

from state coffers and are almost totally dependent on federal funding.

This dependency is particularly true for employment and job training programs,

a fact that takes on added significance with the signing of the new welfare

bill and the push to put people to work. Most states similarly rely heavily

on federal money for children's services. A majority of California funds

(54.3 percent) spent on children's aid, including foster care, are federal.

Former Deputy Commissioner of Revenue Richard Levin and the former budget

director of Ohio, Lee Walker, found 12 departments or agencies in Ohio

that were 40 percent or more dependent on federal funds.

The Twentieth Century Fund, as part of its balanced budget debate project,

commissioned a series of papers to explore more precisely the fiscal effects

of federal government balancing plans on states. Despite variations in

the fiscal health of individual states, a recurrent theme in these papers

is that most states will be hard pressed to finance their own priorities

in the coming decade, let alone absorb massive cuts in federal assistance.

Most states are facing excruciating choices and trade-offs among criminal

justice, education, and health and human service needs. At the same time,

antitax sentiment among voters has risen steadily, significantly limiting

states' revenue-raising options.

Even those states that are well off at the moment, with healthy economies

and substantial "rainy day" funds, would have enormous difficulty

coping with billions in federal cuts. Ohio, for example, has a growing

economy. Legislators

have put aside a $1 billion "rainy day" fund, and this year's

candidates are all talking about cutting taxes. Sounds good? According

to Richard Levin, if these federal cuts had taken place the whole reserve

would have been wiped out in five or six months.

Several other patterns that will severely limit states' capacity to

respond to federal cutbacks emerged from the Twentieth Century Fund's papers.

These include antiquated revenue systems, constitutional or statutory tax

and spending limitations, and a depleted supply of fiscal strategies to

cope with big losses.

Many states have revenue systems that were designed to capture proceeds

from an industrially based, not service, economy, and frequently fail to

generate enough annual revenue to cover current costs. Andy Reschovsky,

an economist at the University of Wisconsin, using conservative assumptions,

estimated that Wisconsin's structural deficit would be $1.5 billion by

2005. When spending cuts from the vetoed federal budget bill were added

to this gap, the number reached $2.5 billion.

An increasing number of states face voter-initiated constraints on raising

revenue and spending state money. California leads the way in sheer number

of constitutional mandates, beginning with Proposition 13, which limited

local property taxes, required supermajority votes on taxes, and increased

local government's dependence on Sacramento. This 1978 amendment was followed

in 1979 by the Gann limit, which limited both local and state expenditures.

Proposition 62 in 1986 limited local tax initiatives. Proposition 98, passed

in 1988, established a floor below which K-14 education funding could not

fall and assured a portion of new revenues. Other recent initiatives, such

as "three strikes and you're out," mandate spending. The three-strikes

initiative will require financing 15 new prisons in the next decade.

Since 1978, voters have passed some form of tax or spending limitations

in 20 states. Jim McIntire estimates that by 2002, Washington's spending

limit will result in a $945 million gap between current service spending

and permissible limits. However, when cuts from the Balanced Budget Act

of 1996 are added, the figure rises to $4.9 billion.

States have responded to current fiscal pressures by using all the gimmicks

(and more) delineated by Richard Briffault. Perhaps the most important

strategy has been the practice of shifting costs either upward, to the

federal government, or downward, to local government. California, for instance,

has used money from the counties to fulfill its obligations to education

under Proposition 98, and most county executives will tell you that safety

net programs as well as other basic services, such as juvenile justice,

lie in tatters. A few years ago, only a federal bailout saved Los Angeles

County from bankruptcy. Thus, many states have already exhausted options

that might be used to absorb permanent reductions in federal spending.


THE BLOCK GRANT BLUDGEON

A balanced budget amendment would also intensify the current pressure

to replace entitlement programs with block grants, since it would be difficult

to achieve balance with open-ended spending commitments. The major welfare

program, AFDC, is no longer an entitlement program, as it has been for

60 years. In the short term, some states will receive a "windfall,"

since their block grant is calculated based on past federal AFDC aid during

years when the economy was either still in a recession or just coming out

of one. At the same time, states will be permitted to use some of the money,

up to 25 percent, for other, unspecified, purposes. To put it another way,

states can cut welfare expenditures by an additional 25 percent without

penalty. But when the next recession hits, states—not the federal government—will

be exclusively responsible for financing services for those in need.

The welfare money at stake is paltry compared with the Medicaid program,

which Republicans also have proposed to turn over to the states. In most

states' budgets, Medicaid dollars constitute the largest percentage of

federal funds, typically 40 to 50 percent of all federal monies flowing

directly to state budgets.

Currently, the Medicaid program is structured to induce states to make

generous contributions. The federal government matches every dollar spent

on Medicaid according to a formula that takes into account state poverty

levels and other demographic factors. Since every dollar spent by a state

leverages federal money, it typically costs a state less than 50 cents

on the dollar. If Medicaid is block granted, this relationship ends, along

with states' incentives to allocate funds to the program. Any increase

in Medicaid requires the entire dollar, which in budgetary terms means

that some other state program doesn't get it.

Most Medicaid recipients are either blind, disabled, or low-income elderly,

not welfare mothers, as commonly perceived, and the largest single category

of Medicaid expenditures is the reimbursement of nursing home costs. To

illustrate the magnitude of reductions in the vetoed Balanced Budget Act,

Levin and Walker sorted Medicaid recipients by category: adults, children,

blind and disabled, and aged. "The federal aid cut to Ohio in the

human services area is the rough equivalent of eliminating Medicaid for

all 793,000 children and all 349,000 low-income adults who are not aged,

blind or disabled," they calculate.

Levin and Walker do not suggest that these are the choices state policymakers

would actually make; the data serve, rather, as illustrations conveying

just how huge the impact on one state could be. One's imagination doesn't

have to stretch very far to predict increased competition among various

Medicaid beneficiaries, including nursing home providers. Overall, Levin

and Walker estimated that the "transition to a balanced federal budget

will cause a 27 percent reduction in federal aid to Ohio's state and local

government." They estimate the cost at $2.4 billion.

The political logic of budget making generally means that when safety

net programs are pitted against education or criminal justice needs, safety

net programs lose. This is particularly true when fiscal pressures squeeze

programs with broader or more powerful constituencies than unemployed or

low-income individuals. During the 1990s, state after state made reductions

in AFDC payments, or ended general assistance altogether.


THE POLITICS OF BALANCE

While the argument over debt is as old as the Republic itself, and the

idea of a balanced budget amendment is several decades old, few observers

before the 104th Congress believed that such a rigid measure would ever

stand a chance of success. We have reached a moment when a balanced budget

amendment is broadly popular, despite program consequences that would be

highly unpopular. The factors that have converged to intensify the usual

tension between policy and politics include these: the excessive levels

of debt incurred during the Reagan years; the ideological push to shrink,

if not dismantle, many government programs; popular disgust with special

interest politics; the emergence of Perot, the Concord Coalition, and budget

balance as symbols of virtuous stewardship; a group of state governors

eager to gain more control and loath to admit there isn't any "devolution"

they can't handle; and tactical dances by Democrats fearful of the "tax

and spend" label.

The recent political history of the amendment suggests just how fragile

is the opposition. In early 1995, the Clinton administration did work (belatedly)

to ensure a "no" vote. Several senators, including Senate Minority

Leader Tom Daschle, Byron Dorgan, and Kent Conrad, changed their previous

"yes" votes to "no" in the 31-hour cliffhanger Senate

debate in March 1995, when the amendment died by one vote. But their stated

opposition was based on the fact that the amendment didn't protect Social

Security. The Social Security program, currently in surplus, is part of

the budget, and its current revenue flow actually offsets the overall deficit

by about $60 billion a year. As a matter of fiscal policy, segregating

Social Security would therefore require an additional $60 billion a year

of additional budget cuts to achieve a balanced budget.

Opinion polls show that support for a balanced budget amendment drops

from 80 percent to 30 percent if Social Security isn't protected. If Social

Security were protected, all three swing senators indicated they would

support a balanced budget amendment, and even drafted and introduced a

separate version to reflect their position. Just

before the last vote, in June 1996, rumors were rife that the Republicans

would agree to protecting Social Security, thereby securing these three

votes, and possibly those of Senators Dianne Feinstein, Wendell Ford, and

Ernest Hollings. Dorgan's press aide says negotiations never got serious.

Dole wanted a second vote before he left the Senate, even though he knew

he couldn't win it, to use as a club against Democrats in November.

The basis for the Democratic senators' opposition, however, is hardly

rock solid. Depending upon the composition of the Senate in the next Congress,

their opposition could easily become a parable about the perils of political

"cover." Political cover is a kind of fig leaf that produces

a voting record consonant with voter preferences, but that doesn't necessarily

reflect the politician's "real" position. An aide to Daschle

described the obsession with cover as building a coffin within a coffin.

Elizabeth Drew, in her two books about Congress and the Clinton administration,

On the Edge and Showdown, chronicles Clinton's capitulation

from deficit reduction strategies to Republican demands for legislative

balance. The great irony, of course, is that the voters soon came to see

Gingrich's budget plans as extreme. Every opinion poll that asked questions

regarding balance if it meant cuts in specific programs showed a precipitous

drop in support. These findings suggest there is in fact room for education

and leadership.


BEYOND BALANCE

Progressives and Democrats should stop pandering to the conceit that

budget balance equals virtue. This tactical retreat only reinforces a mistaken

consensus that then becomes politically irresistible. The public needs

to know precisely what it would cost to balance by 2002. Opponents of a

constitutional amendment should begin planning hearings at the state level

to make clear the impact. Similarly, block grant proposals to turn safety

net programs over to the states—the corollary to balance—need to be vigorously

fought. Democrats should be thoroughly forewarned, since Speaker Gingrich

has been explicit about his objectives, which have little to do with the

efficiencies or effectiveness of any program objectives.

Block grants shift the battle to protect safety net programs to 50 separate

arenas. On the first day of the 104th Congress, Gingrich told the Washington

Times: "What I can do between now and Easter is break up the Washington

logjam, shift power back to the fifty states, break up all the liberal

national organizations—and make them scramble to the state capitals in

Texas, Georgia, and in Missouri." A much larger purpose, however,

shared by numerous Republicans, is the ultimate dismantling of New Deal

and Great Society programs.

If eliminating government programs is not the real purpose of the "new

federalism," then there needs to be a new and serious debate about

the appropriate roles of the federal government and the states. One model

that could be borrowed from the states is capital budgeting. A federal

capital budget would make good policy sense in its own terms. It would

call attention to the fact that public borrowing can equal productive investment.

President Clinton, if re-elected, should stop giving aid and comfort

to any form of absolute budget balance. The extreme backloading, which

would leave the most severe cuts to his successor after 2001, suggests

that the goal has never been realistic. Democrats made a mistake when they

embraced budget balance in any form. Now, they need to begin a more sophisticated

national conversation about fiscal policy, before their "cover"

becomes their suffocation.



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