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The Balanced Budget Amendment's Fatal Flaw—A Commentary by Peter H. Schuck

The following commentary was published in the Wall Street Journal on July 22, 2011.

The Balanced Budget Amendment's Fatal Flaw
By Peter H. Schuck

A balanced budget amendment (BBA), a hardy perennial in Congress, is once again in the headlines. This is entirely understandable. The public trusts neither the president nor Congress, regardless of the party in control, to strike and maintain an economically healthy, sustainable balance between federal spending and revenues. Thus, the idea of tying them to the constitutional mast, Ulysses-like, so that they cannot succumb to the inevitable temptation to spend more and tax less is itself tempting to many reformers and voters.

Nevertheless, many sound objections to a BBA exist, which the current version—indeed, any version—cannot adequately address. Many of these objections, such as the need for deficit spending in a recession, are hoary Keynesian pieties and will resonate only with liberals and moderates. But one objection, largely absent from the debate so far, should convince even the most hidebound conservative to strongly oppose the BBA.

I can think of no other law that would empower judges to exercise more political and policy-making discretion than a balanced budget amendment. It would quickly realize every conservative's fears of an "imperial judiciary" that "legislates from the bench"—even if the courts simply did their job and did not grasp for that power.

First, the courts would be swamped with challenges to every governmental decision with significant budgetary implications, which means almost all important decisions. As federal Judge Ralph Winter pointed out long ago, the judges would have to decide who, if anyone, would have standing to sue and who the proper defendant would be. If they ruled that no one had standing, then the amendment would be legally unenforceable, a dead letter. If the judges found standing, however, a host of exceptionally controversial legal-interpretation issues would arise.

Perhaps the most fundamental questions have been posed by Rudy Penner, who was Congressional Budget Office director in the Reagan years: What is a "budget," and which budgets are covered by the amendment? This is pivotal because the amendment would create an irresistible incentive for politicians to expand "off-budget" programs or establish new ones.

Social Security, Fannie Mae, Freddie Mac, the Postal Service and the new Consumer Financial Protection Bureau are all off-budget and constitute a huge share of federal fiscal commitments. The BBA does not even mention this multitrillion-pound gorilla, nor does it deal with the creation of new off-budget spending programs which would certainly proliferate in its wake, so a judge would have to decide whether they are included. (The state and local equivalent dodge of balanced budget rules is the "special district"—some 40,000 nationwide—which often has taxing power. )

The BBA also uses the basic term "tax" as if it were self-defining, but of course it isn't. Indeed, one of the key issues in the legal challenge to ObamaCare is whether the spending mandates in the legislation constitute a tax (as the administration argues) or a penalty (as its opponents claim). Only the courts can decide—and so far they have split on the issue. This is political power of a high order, given the importance of the legislation.

Then there are the classic ploys that governments use to evade budgetary restrictions, about which the BBA is also silent. Does the amendment's term "outlay" apply to long-term capital investments such as infrastructure spending, of which the Obama administration is so fond? If not, we can anticipate lots more spending being called capital investment. The judges will have to decide whether the amendment applies or not.

Does "outlay" cover government loan guarantees—a form of subsidy used promiscuously by government to avoid budgetary constraints? Does "revenue" include so-called "offsetting receipts" such as the large amounts that Medicare beneficiaries pay for their physician and drug benefits? If so, we can expect Congress to use more of them. Again, the courts will have to decide.

It does seem clear that the amendment would not cover private expenditures mandated by government regulation of individuals and firms. After all, regulations affect private budgets, not governmental ones; that is part of their political appeal. If the BBA passes, then look for the politicians to transfer much of their spending desires into a burst of new regulations. For conservatives, this should be a nightmare.

The political pundits report that there is no chance that the balanced budget amendment will pass. This should be cause for conservative celebration, not disappointment.

Mr. Schuck is a professor at Yale Law School and the co-editor, with James Q. Wilson, of "Understanding America: The Anatomy of an Exceptional Nation" (PublicAffairs, 2008).