New Budget Deal Reveals Need for Federal Balanced Budget Amendment

The recent budget deal that was agreed to by President Trump and Congressional leaders has fiscal conservatives livid. This deal raises discretionary spending caps by over $300 billion over two years and effectively repeals the budget caps that were established as part of the Budget Control Act in 2011. The frustration of budget hawks is certainly understandable. While the rest of the budget has grown in recent years, non-defense discretionary spending has actually fallen in constant dollars since 2011. However, seasoned observers of fiscal policy knew it was unlikely to last. After all, there is plenty of evidence that legislatures, including Congress, have been unable to place effective long term limits on the growth of spending.

Indeed, after triple digit budget deficits became commonplace in the 1980s, Congress adopted the Gramm Rudman Hollings Act in 1985. This piece of legislation established declining deficit targets every year and triggered automatic spending cuts if those targets were not met. Half the cuts were to come from defense spending, and half the cuts were to come from domestic programs. While Gramm Rudman Hollings did result in some short term spending cuts, its main outcome was creative accounting. Congress often pushed spending into future fiscal years to create phantom spending cuts to stay within the deficit targets. When the economy slowed down, the deficit targets became too difficult to reach, and the legislation was scrapped in 1990.

Additionally in the aftermath of the 1970s tax revolt, many state legislatures enacted tax and expenditure limits (TELs) which placed annual limits on the growth of expenditures, revenue, or tax revenue. However, a significant body of academic research finds that these limits were an ineffective tool at reducing the growth of government. Even California’s experience is instructive. The passage of Proposition 13 in 1978 gave Golden State taxpayers some much needed property tax relief. However, in subsequent years other taxes – including taxes on income, sales, alcohol, and tobacco – all increased dramatically. California now has one of the highest tax burdens in the country.

Fiscal conservatives should revisit pursuing a balanced budget amendment to the U.S. Constitution. Regardless of the results of elections, Congress has shown no ability to place effective long term limits on spending. A balanced budget amendment or another constitutional fiscal limit might be the only effective long-term strategy to limit the growth of government. America’s long term fiscal outlook looks especially bleak due to rapidly growing entitlement programs. Indeed, a balanced budget amendment might as well be the only strategy to get Congress to seriously discuss reforming rapidly expanding programs like Social Security, Medicare, and Medicaid and shore up America’s fiscal future.