Congress: Budget Amendment Riddles

By Thomas, Rich | Newsweek, March 6, 1995 | Go to article overview

Congress: Budget Amendment Riddles


Thomas, Rich, Newsweek


THIS CONGRESS DOESN'T have the guts to balance the budget without the spine of a balanced-budget amendment," says Rep. Gerald Solomon of New York. Is stop-us-before-we-spend-again a strong enough argument? Congress is on the verge of passing a constitutional amendment that would require a balanced budget in 2002 and every year thereafter--even though it could eliminate the deficit this year if it wanted. Chief economic correspondent Rich Thomas explains this and other paradoxes of the debate:

Is Congress inherently incapable of balancing the budget?

For the first 170 years of the Republic, the government usually squared its books, except in time of war and economic depression. But in the last 35 years, the United States has run deficits 34 times, even when the economy was booming. This year we're spending $200 billion more than we're taking in. And there's more debt on the way. The deficit will grow as the population ages, forcing the Treasury to lay out more for social security, pensions and medical care.

If we can keep on borrowing, does it matter if we have deficits?

In theory, nations can borrow indefinitely because there's always another generation to shoulder the burden. But society has a limited pool of savings that form the basis of investment in expanding factories, businesses and housing. By taking more and more of those savings to finance the debt, the government would "crowd out" more productive investments. Also, the government now spends $234 billion just to pay interest on the debt, money that could be used for other things. In 1961, our bill for interest was only $6.7 billion.

So why doesn't Congress get on with deficit reduction?

Because American voters have become hooked on more benefits from government than they are willing to pay for in taxes. Excluding interest and national defense, three fifths of government spending goes to middle-class benefits.

Would the balanced-budget amendment really strengthen Congress's resolve?

It would at least restore the principle of pay-as-you-go. Public opinion would likely turn against a Congress that openly flouted the Constitution.

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