A balanced budget amendment is a
constitutional
A constitution is the aggregate of fundamental principles or established precedents that constitute the legal basis of a polity, organisation or other type of entity and commonly determine how that entity is to be governed.
When these prin ...
rule requiring that a
state
State may refer to:
Arts, entertainment, and media Literature
* ''State Magazine'', a monthly magazine published by the U.S. Department of State
* ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States
* ''Our S ...
cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Balanced-budget provisions have been added to the
constitution
A constitution is the aggregate of fundamental principles or established precedents that constitute the legal basis of a polity, organisation or other type of entity and commonly determine how that entity is to be governed.
When these princ ...
s of
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
,
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
,
Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
,
Poland
Poland, officially the Republic of Poland, is a country in Central Europe. It is divided into 16 administrative provinces called voivodeships, covering an area of . Poland has a population of over 38 million and is the fifth-most populou ...
,
Slovenia
Slovenia ( ; sl, Slovenija ), officially the Republic of Slovenia (Slovene: , abbr.: ''RS''), is a country in Central Europe. It is bordered by Italy to the west, Austria to the north, Hungary to the northeast, Croatia to the southeast, an ...
,
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
and
Switzerland, among others, as well as to the constitutions of most
U.S. state
In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sove ...
s. In the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
, the
Republican Party has advocated for the introduction of a balanced budget amendment to the
United States Constitution.
Balanced budget amendments are defended with arguments that they reduce deficit spending and constrain politicians in making irresponsible short-term spending decisions when they are in office. Research shows that balanced budget amendments lead to greater fiscal discipline. However, there is substantial agreement among economists that ''strict annual'' balanced budget amendments have harmful near-term economic effects. In times of recession, deficit spending has significant benefits, whereas spending cuts by governments aggravate and lengthen recessions.
[
][
][
] To prevent that, most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote.
Europe
Austria
In November 2011, the
Austria
Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
n coalition government tried to amend its constitution and introduce a German style ''Schuldenbremse'' ("debt brake"). This would have forced the government to reduce its debt level to 60% of
gross domestic product
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is oft ...
(GDP) by 2020. However, the government failed to gain a two-thirds majority in support of the constitutional amendment. Another attempt was made in October 2019, which was also unsuccessful.
Denmark
Local
Local may refer to:
Geography and transportation
* Local (train), a train serving local traffic demand
* Local, Missouri, a community in the United States
* Local government, a form of public administration, usually the lowest tier of administrat ...
and
regional
In geography, regions, otherwise referred to as zones, lands or territories, are areas that are broadly divided by physical characteristics (physical geography), human impact characteristics (human geography), and the interaction of humanity and t ...
authorities in Denmark are not allowed to run deficits and must always balance their budgets. There is no such rule for the national government, which has no limits on debt beyond the common rules of the European Union. Danish debt is very low in international comparison and stands at 33% of GDP in 2019.
France
Article 34 of the Constitution was amended in 2008 to include the objective of balancing the public sector accounts. In 2012, France passed a new law (2012-1403), creating the independent
High Council of Public Finances, giving it the responsibility to report on the sustainability and deviation from planned targets of public spending.
Germany
In 2009,
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
's constitution was amended to introduce the
''Schuldenbremse'' ("debt brake"), a balanced budget provision. This applies to both the federal government and the ''
Länder
Länder (singular Land) or Bundesländer (singular Bundesland) is the name for (federal) states in two German-speaking countries. It may more specifically refer to:
* States of Austria, the nine federal subdivisions of Austria
* States of Germany ...
'' (German states). From 2016 onwards, the federal government was forbidden to run a structural deficit of more than 0.35% of GDP. Since 2020, the states have not been permitted to run any structural deficit at all. The Basic Law permits an exception to be made for emergencies such as a natural disaster or severe economic crisis.
Italy
In 2011, Italian Prime Minister
Silvio Berlusconi
Silvio Berlusconi ( ; ; born 29 September 1936) is an Italian media tycoon and politician who served as Prime Minister of Italy in four governments from 1994 to 1995, 2001 to 2006 and 2008 to 2011. He was a member of the Chamber of Deputies f ...
promised to balance the budget by 2013, and a balanced budget amendment to the
Constitution of Italy
The Constitution of the Italian Republic ( it, Costituzione della Repubblica Italiana) was enacted by the Constituent Assembly on 22 December 1947, with 453 votes in favour and 62 against. The text, which has since been amended sixteen times, ...
was added in 2012 with an overwhelming parliamentary majority, under the following Monti government. Under the amended Constitution, deficit spending can still take place in the event of emergencies, but only if authorized by a
majority of the entire membership in both houses of Parliament.
Poland
Poland's constitution (adopted in 1997) caps the public debt at 60% of GDP – the government cannot take on any financial obligations that would cause that limit to be exceeded. To ensure this level is never breached, Poland has a self-imposed debt threshold of 55% of GDP, and the government must take action to balance the budget once this level is exceeded.
Slovenia
In 2013, the Slovenian parliament approved a balanced budget amendment to the constitution that will come into force in 2015.
Spain
In 2011, the Spanish Parliament proposed a law amending the
Spanish Constitution
The Spanish Constitution (Spanish, Asturleonese, and gl, Constitución Española; eu, Espainiako Konstituzioa; ca, Constitució Espanyola; oc, Constitucion espanhòla) is the democratic law that is supreme in the Kingdom of Spain. It was e ...
to require a balanced budget at both the national and regional level by 2020. The law states that public debt cannot exceed 60% of GDP, though exceptions would be made in case of a natural catastrophe, economic recession, or other emergencies. The changes will also require the government to stick to EU annual deficit limits of 3% of GDP.
Sweden
The Swedish government is obliged to run a budget surplus of at least 1% of GDP on average over a business cycle. In 2019, this goal was temporarily lowered to 0.33% of GDP. The overall debt must not be above 35% of GDP. This rule includes all levels of government, including local authorities.
Switzerland
After years of rising deficits and debt in the 1990s, Switzerland's citizens adopted the debt brake as a constitutional amendment in 2001. The rule was implemented starting in 2003. It states that each year, the budget must be in balance, adjusted for economic conditions. This adjustment is made by multiplying expenditures by a cyclical factor (the ratio of trend real GDP to expected real GDP), thus either allowing for deficits during recessions or forcing lawmakers to have surpluses during booms. Essentially, the rule calls for structural balance in each year and absolute balance over the course of a business cycle. So if lawmakers want to have expansionary fiscal policy during recessions, they need to pay for it by saving up during good economic times. The rule did initially allow for "extraordinary spending" if a qualified parliamentary majority approved, but recent changes have made this spending count as normal expenditures.
United States
U.S. states
Every U.S. state other than
Vermont
Vermont () is a state in the northeast New England region of the United States. Vermont is bordered by the states of Massachusetts to the south, New Hampshire to the east, and New York to the west, and the Canadian province of Quebec to ...
has some form of balanced budget provision that applies to its operating budget. The precise form of this provision varies from state to state. Indiana has a state debt prohibition with an exception for "temporary and casual deficits," but no balanced budget requirement. The governor is not legally required to submit a balanced budget, the legislature is not required to approve appropriations that are within available revenue, and the state is not required to end the year in balance. An unusual variant is the
Oregon kicker, which bans ''surpluses'' of more than 2% of revenue by refunding the money to the taxpayers. State balanced budget requirements do not apply to state capital budgets, which generally allow states to use their debt capacity to finance long-term expenditures such as transportation and other infrastructure.
U.S. federal government
There is no balanced budget provision in the
U.S. Constitution
The Constitution of the United States is the supreme law of the United States of America. It superseded the Articles of Confederation, the nation's first constitution, in 1789. Originally comprising seven articles, it delineates the nation ...
, so the
federal government is not required to have a balanced budget and
Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
usually does not pass one. Several proposed
amendments An amendment is a formal or official change made to a law, contract, constitution, or other legal document. It is based on the verb to amend, which means to change for better. Amendments can add, remove, or update parts of these agreements. The ...
to the U.S. Constitution would require a balanced budget, but none have been enacted. Most of these proposed amendments allow a supermajority to waive the requirement of a balanced budget in times of
war
War is an intense armed conflict between states, governments, societies, or paramilitary groups such as mercenaries, insurgents, and militias. It is generally characterized by extreme violence, destruction, and mortality, using regular o ...
,
national emergency
A state of emergency is a situation in which a government is empowered to be able to put through policies that it would normally not be permitted to do, for the safety and protection of its citizens. A government can declare such a state du ...
, or
recession
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
.
History
The
Articles of Confederation and the Perpetual Union had granted to the
Continental Congress the power
: to borrow money, or emit bills on the credit of the United States, transmitting every half-year to the respective States an account of the sums of money so borrowed or emitted
And, with this as a model
Article I, Section 8, Clause 2 of the Constitution grants to the
United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
the power
: To borrow money on the credit of the United States;
At the time that the Constitution came into effect, the United States had a significant debt, primarily associated with the
Revolutionary War. There were differences within and between the major political coalitions over the possible liquidation or increase of this debt. As early as 1798, Thomas Jefferson wrote:
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government; I mean an additional article taking from the Federal Government the power of borrowing. I now deny their power of making paper money or anything else a legal tender. I know that to pay all proper expenses within the year would, in a case of war, be hard on us. But not so hard as ten wars instead of one. For wars could be reduced in that proportion; besides that, the State governments would be free to lend their credit in borrowing quotas.
(Although Jefferson made a point of seeking a balanced budget during the early years of his administration, he seems to have later reversed himself in
purchasing the Louisiana Territory. He made no exception for war, but rather saw the requirement of maintaining a balanced budget as a salutary deterrent.)
The issue of the federal debt was next addressed by the Constitution within
Section 4 of the Fourteenth Amendment (proposed on June 13, 1866, and ratified on July 9, 1868):
: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligation, and claims shall be held illegal and void.
One of the earliest Balanced Budget Amendment proposals presented in Congress was that of
Senator Millard Tydings, who introduced Senate Joint Resolution 36, a resolution in support of a Constitutional Amendment that would have taken away some of the flexibility the U.S. Treasury had accrued with respect to debt management by proposing to prohibit appropriations in excess of revenues in the absence of a new debt authorization and require that any new debt be liquidated over a 15-year period.
On May 4, 1936,
Representative
Representative may refer to:
Politics
* Representative democracy, type of democracy in which elected officials represent a group of people
* House of Representatives, legislative body in various countries or sub-national entities
* Legislator, som ...
Harold Knutson
Harold Knutson (October 20, 1880 – August 21, 1953) was an American politician and journalist, who represented Minnesota in the United States House of Representatives from 1917 to 1949 as a member of the Republican Party. From 1919 to 192 ...
(
R-
Minnesota
Minnesota () is a state in the upper midwestern region of the United States. It is the 12th largest U.S. state in area and the 22nd most populous, with over 5.75 million residents. Minnesota is home to western prairies, now given over to ...
) introduced House Joint Resolution 579, resolution in support of a Constitutional Amendment that would have placed a ''per capita'' ceiling on the federal debt in peacetime.
[House Joint Resolution 579, 74th Congress, 2d session; reproduced in Report 105-3, 105th Congress, 1st session, February 3,
1997, pp. 3–7.]
Article V of the Constitution specifies that if the legislatures of two-thirds of the states apply to Congress for a constitutional amendment by means of an amendment-proposing convention, then Congress must call that convention. A total of 44 states have submitted applications for a balanced budget amendment, at some time in the past. However, they were not outstanding simultaneously as some have expired or been rescinded. As of 27 December 2016, there were 28 outstanding applications according to the Balance Budget Amendment Task Force which advocates for such an amendment. On 24 February 2017, Wyoming became the 29th state to call for a convention to pass a balanced budget amendment.
Deficit spending
Unlike the constitutions of most
U.S. state
In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sove ...
s, the United States Constitution does not require the
United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
to pass a balanced budget, one in which the projected income to the government through
tax
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
es, fees,
fines Fines may refer to:
* Fines, Andalusia, Spanish municipality
* Fine (penalty)
* Fine, a dated term for a premium on a lease of land, a large sum the tenant pays to commute (lessen) the rent throughout the term
*Fines, ore or other products with a s ...
, and other revenues equals or exceeds the amount proposed to be spent. This has led to
deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
and the creation of a
national debt. Except for a short period during the
presidency
A presidency is an administration or the executive, the collective administrative and governmental entity that exists around an office of president of a state or nation. Although often the executive branch of government, and often personified b ...
of
Andrew Jackson
Andrew Jackson (March 15, 1767 – June 8, 1845) was an American lawyer, planter, general, and statesman who served as the seventh president of the United States from 1829 to 1837. Before being elected to the presidency, he gained fame as ...
since its inception the United States federal government has always been in debt.
Gross debt includes both public debt and
Intragovernmental holdings
In public finance, intragovernmental holdings (also known as intragovernmental debt or intragovernmental obligations) are debt obligations that a government owes to its own agencies. These agencies may receive or spend money unevenly throughout ...
—money borrowed from federal funds such as
Medicare and
Social Security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
.
Fiscal years 1940–2009 GDP figures are derived from 2010 Office of Management and Budget figures which contained revisions of prior year figures due to significant changes from prior GDP measurements. Fiscal years 1950-2010 GDP measurements are derived from December 2010 Bureau of Economic Analysis figures which also tend to be subject to revision. The two measures in Fiscal Years 1980, 1990 and 2000-2007 diverge only slightly.
Nixon and Carter
Deficit spending resumed under
Richard Nixon
Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
, who had become president by the time that the 1969 surplus was known. Nixon's advisors chose to fight
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
rather than to maintain a balanced budget. Nixon was famously quoted as saying, "
We are all Keynesians now
"We are all Keynesians now" is a famous phrase attributed to Milton Friedman and later rephrased by President of the United States, U.S. president Richard Nixon. It is popularly associated with the reluctant embrace in a time of financial crisis of ...
," with regard to the budget deficit that his administration began to accumulate during years of mild recession. He also imposed the first peacetime
wage and price controls
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually seeking to establish wages and prices below free market level.
Incomes policies have often been resorted to ...
, mandatory
petroleum
Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crud ...
allotments, and many other features of a
planned economy.
With the distractions of the
Watergate scandal
The Watergate scandal was a major political scandal in the United States involving the administration of President Richard Nixon from 1972 to 1974 that led to Nixon's resignation. The scandal stemmed from the Nixon administration's contin ...
and the budget deficit relatively small, however, most criticisms were sidelined until the administration of
Jimmy Carter
James Earl Carter Jr. (born October 1, 1924) is an American politician who served as the 39th president of the United States from 1977 to 1981. A member of the Democratic Party, he previously served as the 76th governor of Georgia from 1 ...
. During Carter's presidency, the term "
stagflation
In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actio ...
" enjoyed widespread use as the economy stagnated even among increased inflation rates. This economic situation had been previously unheard of in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
where increasing prices and wages had generally been seen during times of economic growth. Republicans began to make much mention of "
Democratic deficits" and proposed the Balanced Budget Amendment as a cure.
During this time period, many liberal Democrats began to call for a Balanced Budget Amendment, including Governor
Jerry Brown
Edmund Gerald Brown Jr. (born April 7, 1938) is an American lawyer, author, and politician who served as the 34th and 39th governor of California from 1975 to 1983 and 2011 to 2019. A member of the Democratic Party, he was elected Secretary of ...
of
California
California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...
, who ran for president against Carter in 1980, and then-Congressman
Paul Simon, who, upon his election to the U.S. Senate, would write the version of the amendment that came closest to passing.
National Taxpayers Union and an Article V Convention
The
1980 presidential election gave the presidency to Republican
Ronald Reagan and control of the Senate to the Republicans. With President Reagan's support, passage of the amendment started to seem more possible. On August 4, 1982, the United States Senate introduced and debated Joint Resolution 58, an Amendment to the United States Constitution requiring for each year's Federal budget that "total outlays are no greater than total receipts" without three-fifths majority vote of both houses. Joint Resolution 58 passed in the Senate but was defeated in the House of Representatives, falling 46 votes short of the 2/3 majority needed. The amendment's backers, far from despairing, said that it was needed more than ever. They began a plan to make an "end run" around Congress, for the U.S. Constitution also allows two-thirds of state
legislature
A legislature is an assembly with the authority to make law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its p ...
s to petition for a
convention to be called for the purpose of writing proposed amendments to the Constitution, a procedure which has never happened under the Constitution; the Constitution itself was created by the
original constitutional convention of 1787. Much of this effort was initially organized by the
National Taxpayers Union
The National Taxpayers Union (NTU) is a fiscally conservative taxpayer advocacy organization and taxpayers union in the United States, founded in 1977 by James Dale Davidson. NTU says that it is the oldest taxpayer advocacy organization in th ...
and its president at the time,
George Snyder, a former Majority Leader of the Maryland State Senate. Many people were appalled at the concept; some constitutional scholars suggested that such a body could not be limited to its ostensible purpose and could largely rewrite the Constitution, perhaps removing or reducing the Bill of Rights, a fear that backers described as being totally groundless, since any proposed changes would still have to be approved by three-quarters of the states, which would presumably doom any attempt to end basic constitutional freedoms.
Detractors also noted that there was no mechanism in place by which to select delegates to any such convention, meaning that the states might choose to select them in a way which tended to subvert democracy. Backers also produced their own constitutional scholars stating that limiting such a convention was perfectly constitutional, that it could be limited to whatever purpose the states had called it for, and that states would be free to select the delegates to represent them, as was the case in 1787.
Gramm-Rudman-Hollings Act
Perhaps motivated by the number of state legislatures calling for such a convention approaching the required two-thirds, and recognizing its inability to make sufficient cuts on its own initiative to balance the budget, Congress responded in 1985 with the
Gramm-Rudman-Hollings Act, named for its Senate sponsors, which called for automatic cuts in discretionary spending when certain deficit-reduction targets were not met. This act soon became a convenient target for opponents of all stripes, who blamed it for government failing to meet perceived needs, for not abolishing the deficit, and anything else that might be wrong with government. When it began to affect popular programs and was partially overturned in the courts, it was first amended to postpone the strength of its effects until later years, and then repealed in its entirety.
George H. W. Bush and Ross Perot
President George H. W. Bush, in part to help ensure Congressional support for the
Gulf War
The Gulf War was a 1990–1991 armed campaign waged by a Coalition of the Gulf War, 35-country military coalition in response to the Iraqi invasion of Kuwait. Spearheaded by the United States, the coalition's efforts against Ba'athist Iraq, ...
, agreed to turn back on a campaign promise of
no tax increases, reportedly in part because he saw disaffection from his conservative base due to the looming deficit. In his rhetoric to defend the idea of a balanced budget amendment, Bush likened the U.S. government to a household.
Deficit spending continued but was no longer much of an issue until the presidential bid of
Ross Perot during the
1992 presidential election. Perot made the deficit, and his plans to eliminate it, the major issue of his campaign, along with his
protectionist
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
plans to reduce and then eliminate the
trade deficit
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
. Many supporters of the Balanced Budget Amendment flocked to the Perot camp. Despite winning a substantial number of popular votes, Perot failed to carry a single state (zero electoral votes). He eventually faded from the political scene and when appearances were made, focused more on the trade deficit issue.
Newt Gingrich, Clinton and the budget surplus
President
Bill Clinton
William Jefferson Clinton ( né Blythe III; born August 19, 1946) is an American politician who served as the 42nd president of the United States from 1993 to 2001. He previously served as governor of Arkansas from 1979 to 1981 and agai ...
did not support a constitutional amendment, but in his 1992 campaign, he called for balancing the budget through ordinary fiscal policy. He came into office facing a large deficit. Clinton signed into law the
Omnibus Budget Reconciliation Act of 1993
The Omnibus Budget Reconciliation Act of 1993 (or OBRA-93) was a federal law that was enacted by the 103rd United States Congress and signed into law by President Bill Clinton on August 10, 1993. It has also been unofficially referred to as the Def ...
, which attacked the deficit by raising taxes. Beginning with the 1998 budget year, during his second term, the federal government ran a yearly budget surplus through FY 2001. During the Clinton administration, there was an official surplus of $419 billion during fiscal years 1998, 1999, 2000, and 2001.
However, it has been argued that this official balanced budget only constituted a surplus in the public debt (or ''on-budget''), in which the Treasury Department borrowed increased tax revenue from intragovernmental debt (namely the Social Security Trust Fund), thus adding more interest on Treasury bonds. In effect, the four year alleged 'surplus' was only in public debt holdings, while the National Debt Outstanding increased every fiscal year, the lowest being a $17.9 billion deficit in FY2000. Meanwhile, Government Sponsored Enterprises (GSEs) such as GNMA, FNMA and FHLMC continued to borrow and spend an extra $543.6 billion over and above their previous 3 years. GSE debt instruments are classified as US Government Securities, but are not officially part of the Federal Debt total.
[Submitted by John Buck]
In 1995, the Republican-led Congress immediately engaged in a battle with President Clinton culminating in a vetoed budget and a brief
shutdown of the Federal government. Despite negotiations disagreement remained on the pace of spending cuts. Ultimately Republican concessions differed little from what was attainable without shutdown. One provision of their "
Contract with America
The Contract with America was a legislative agenda advocated for by the Republican Party during the 1994 congressional election campaign. Written by Newt Gingrich and Dick Armey, and in part using text from former President Ronald Reagan's 19 ...
" campaign document, the brainchild of
Newt Gingrich who would later become
Speaker of the House
The speaker of a deliberative assembly, especially a legislative body, is its presiding officer, or the chair. The title was first used in 1377 in England.
Usage
The title was first recorded in 1377 to describe the role of Thomas de Hungerf ...
, called for a balanced-budget amendment. In 1995, such an amendment passed the House of Representatives and came within one vote of passing the Senate.
In his final
State of the Union address, Clinton said the United States should continue to balance its books and pay off the debt.
Deficits under George W. Bush and Barack Obama
A recession, tax cuts and increases in military and other spending have eliminated late 1990s-era surpluses. Both the deficit and debt grew to the largest in U.S. history. In fiscal years starting September 30, 2002, and ending September 30, 2004, the deficit increased nearly 50%.
By 2008, the last full year of
George W. Bush
George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...
's presidency, the deficit had almost doubled again, for the first time exceeding $1
trillion
''Trillion'' is a number with two distinct definitions:
* 1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,0 ...
.
As a result, during the administration of President George W. Bush, the ''gross debt'' increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008,
rising from 57.0% of GDP to 74.5% of GDP.
By the end of 2008, a large reduction in tax revenues caused by the
Great Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
and the cost of federal stimulus spending began contributing to a rapidly increasing deficit. Responses to the crisis from both the Bush administration—the
bank bailouts and
economic stimulus
In economics, stimulus refers to attempts to use monetary policy or fiscal policy (or stabilization policy in general) to stimulate the economy. Stimulus can also refer to monetary policies such as lowering interest rates and quantitative easi ...
of late 2008—and more
stimulus spending in the first months of the Obama administration grew the deficit further. By the end of 2009, the national debt reached a record $11.9 trillion. The
Congressional Budget Office
The Congressional Budget Office (CBO) is a List of United States federal agencies, federal agency within the United States Congress, legislative branch of the United States government that provides budget and economic information to Congress.
Ins ...
estimated in March 2009 that under the Obama administration ''public debt'' would rise from 40.8% of GDP in 2008 to 70.1% in 2012. ''Gross debt'' did rise to 84.5% of GDP at the end of Fiscal Year 2009 and to 93.5% of GDP at the end of the fiscal year 2010. (Gross debt includes both public debt and
intragovernmental holdings
In public finance, intragovernmental holdings (also known as intragovernmental debt or intragovernmental obligations) are debt obligations that a government owes to its own agencies. These agencies may receive or spend money unevenly throughout ...
– money borrowed from federal funds such as
Medicare and
Social Security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
.)
During the
2011 US debt ceiling crisis, some Republicans supported a bill that would avert the crisis by raising the
debt ceiling
A debt limit or debt ceiling is a legislative mechanism restricting the total amount that a country can borrow or how much debt it can be permitted to take on. Several countries have debt limitation restrictions.
Description
A debt limit is a l ...
, but with an increase that would not take effect until a balanced-budget amendment was approved by both houses of Congress and submitted to the states.
In addition to balancing the budget, it would also impose a constitutional limit on federal spending as a percentage of
gross domestic product
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is oft ...
and would set a
supermajority requirement on tax increases.
The
Budget Control Act of 2011
The Budget Control Act of 2011 () is a federal statute enacted by the 112th United States Congress and signed into law by US President Barack Obama on August 2, 2011. The Act brought conclusion to the 2011 US debt-ceiling crisis.
The law inv ...
, which resolved the debt-ceiling crisis, required Congress to vote on a balanced-budget amendment in the near future. In addition, it stated that once a balanced budget amendment was sent to the states, the debt ceiling would be automatically increased by 1.5 trillion (this would be in addition to the initial
debt limit
A debt limit or debt ceiling is a legislative mechanism restricting the total amount that a country can borrow or how much debt it can be permitted to take on. Several countries have debt limitation restrictions.
Description
A debt limit is a l ...
increase of 2.1 trillion (from 14.294 to 16.394 trillion)). If this provision were to take effect today, it would raise the debt limit to approximately 18.199 trillion, therefore, end the
2013 debt ceiling crisis.
On November 18, 2011, the House of Representatives voted down a balanced-budget amendment that would not have imposed a supermajority requirement on tax increases.
House Rules Committee
The Committee on Rules, or more commonly, the Rules Committee, is a committee of the United States House of Representatives. It is responsible for the rules under which bills will be presented to the House of Representatives, unlike other commit ...
chair
David Dreier
David Timothy Dreier OAE (/ draɪər/; born July 5, 1952) is an American businessman, philanthropist, and politician who served as a Republican member of the United States House of Representatives from California from 1981 to 2013. He was one ...
(R-CA), who had voted for the amendment in 1995, announced that he had changed his mind about the need to amend the Constitution, in light of the success in balancing the budget in the late 1990s.
Impact
There is substantial agreement among economists that a strict balanced budget amendment would have adverse effects. In times of recession, deficit spending has significant benefits, whereas spending cuts by governments aggravate and lengthen recessions.
In 2003, approximately 90% of the members of the
American Economic Association agreed with the statement, "If the federal budget is to be balanced, it should be done over the course of the
business cycle
Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...
, rather than yearly."
Weighted by confidence, 99% of U.S. economists surveyed by
IGM
Immunoglobulin M (IgM) is one of several isotypes of antibody (also known as immunoglobulin) that are produced by vertebrates. IgM is the largest antibody, and it is the first antibody to appear in the response to initial exposure to an antig ...
in 2017 agreed that a balanced budget amendment would not reduce economic output variability in the United States, and 53% agreed that it would not substantially decrease the borrowing costs of the federal government.
Economist and public choice scholar
James Buchanan was a prominent advocate for a balanced budget amendment. In U.S. politics, Republicans tend to advocate for balanced budget amendments, whereas Democrats oppose them.
Lobbying organizations supporting the balanced budget amendment include:
Balanced Budget Amendment Task Force, the
American Legislative Exchange Council
The American Legislative Exchange Council (ALEC) is a nonprofit organization of conservative state legislators and private sector representatives who draft and share model legislation for distribution among state governments in the United State ...
, and
Citizens for Self-Governance
Citizens for Self-Governance (CSG) is a conservative American nonprofit political organization. In 2015, it launched a nationwide initiative calling for a convention to propose amendments to the United States Constitution to reduce federal spendi ...
.
The
Center for Budget and Policy Priorities has argued that constitutional balanced budget amendment would pose serious risks.
The amendment has been called "political posturing" because its proponents use it to position themselves as supporters of a balanced budget but without specifying which unpopular tax increases or spending cuts they would support to reach that goal.
For example,
Robert Bixby
Robert L. Bixby is the Executive Director of the Concord Coalition, a nonpartisan grassroots organization that educates the public about fiscal responsibility. The Coalition was founded in 1992, and Bixby was named the Executive Director in 1999. ...
of the anti-deficit
Concord Coalition called the amendment "an avoidance device."
Economist
Dean Baker
Dean Baker (born July 13, 1958) is an American macroeconomist who co-founded the Center for Economic and Policy Research (CEPR) with Mark Weisbrot. Baker has been credited as one of the first economists to have identified the 2007–08 United Sta ...
has noted that if the federal government were to run budget surpluses with the US still experiencing a large trade deficit, the economy would, in the absence of
economic bubbles, shrink and experience rising unemployment. Without significant devaluation of the US dollar, he has stated, the federal government necessarily has to run budget deficits to offset trade deficits or there will be high unemployment.
It has been argued that such amendment would likely be unenforceable. Among other reasons, the standard budgetary process in the United States operates with ''projected'' figures. There is no way of knowing ahead of time whether the budget would end up unbalanced in any fiscal year before that fiscal year is over. While the Congress may be mandated by the amendment only to pass balanced budgets, this could be easily circumvented by inflating revenue projections or routing spending through off-budget channels. Balanced-budget amendment proposals often contain an exemption for emergencies such as being in the state of war. It could be envisioned that the Congress would simply declare the country in a perpetual state of war, year after year, just to avoid the necessity of politically costly spending cuts or tax increases.
Asia
Hong Kong
The
Hong Kong Basic Law
The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China is a national law of China that serves as the organic law for the Hong Kong Special Administrative Region (HKSAR). Comprising nine chapters, 160 ...
stipulates that the government must keep “the expenditure within the limits of revenues in drawing up its budget” and “avoid deficits”. Debt to GDP in Hong Kong was 42.4% in 2019.
See also
*
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output a ...
*
Deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
*
Golden Rule (fiscal policy)
The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that ''over the economic cycle, the Government will borrow only to invest and not to fund current spending''. In layman's terms this means that on average ...
*
European Debt Crisis
The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone membe ...
References
Notes
External links
* , proposed Balanced-Budget-Amendment approved by the U.S. Senate on August 4, 1982
* , proposed Balanced Budget-Amendment approved by the U.S. House of Representatives on January 25, 1995
H.R.2560 – Cut, Cap, and Balance Act of 2011 (Full Text) proposed Cap-and-Balance-Budget Amendment approved by the U.S. House of Representatives on July 19, 2011
Compact for America streamlined Article V balanced budget amendment approach via interstate compact
*
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch Ind ...
'
Policy Analysis and Proposal of the Balance-Budget Veto AmendmentAmericans for a Balanced Budget Amendmentorganization
A Balanced Budget Constitutional Amendment: Background and Congressional OptionsCongressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a ...
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Proposed amendments to the United States Constitution
United States federal budgets