Balanced Budget Amendment the answer? Boozman says yes, Pryor no, Part 33 (Input from Dan Mitchell of the Cato Institute Part 5)

Classic Ron Paul: “This is a small effort in the right direction”

4/19/1997, C-SPAN

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Steve Brawner in his article “Safer roads and balanced budgets,” Arkansas News Bureau, April 13, 2011, noted:

The disagreement is over the solutions — on what spending to cut; what taxes to raise (basically none ever, according to Boozman); whether or not to enact a balanced budget amendment (Boozman says yes; Pryor no); and on what policies would promote the kind of economic growth that would make this a little easier.

Dan Mitchell wrote a great article called “Why a Tax Limitation/Balanced Budget Amendment is Needed to Control Spending,” Cato Institute, Feb 19, 1997. I will be posted portions of that article the next few days. Here is the fourth portion:

How Would the Amendment Affect Social Security?

Senior citizens worry that a balanced budget requirement would pressure Congress to reduce Social Security benefits. This is a legitimate concern, but the amendment is not the problem. Social Security has an unfunded liability of between $7 trillion and $11 trillion. Whether the amendment is approved or not, lawmakers will be forced to address this issue, especially once the system begins to run a deficit shortly after the turn of the century.

The privatization of Social Security is the best way for senior citizens to protect their retirement benefits. When Chile privatized its retirement system, participants were given bonds equal to the value of their promised benefits. These bonds became the participants’ private property, which meant that benefits no longer were subject to the whims of politicians. This privatization should occur in the U.S. system as well, regardless of whether the Constitution is changed to require a balanced budget. It is the only way senior citizens and those nearing retirement can ensure their retirement income.

Some opponents of the balanced budget amendment have argued that Social Security funds should be excluded because the surplus “masks the true size of the deficit.” But Social Security is a government program; the money spent on retirement benefits is government spending, and payroll taxes are government revenues. The only proper and reasonable definition of the deficit is the amount of money the government has to borrow from private credit markets when total spending exceeds total revenue.

To exclude Social Security from the balanced budget requirement would be to create a gaping loophole that lawmakers could use to promote new spending at the expense of the economy and future generations. It does not take a vivid imagination, for instance, to foresee future lawmakers creating new programs and making them part of the Social Security system in order to avoid having to pay for them.2 Critics of the amendment will deny this is their goal, and will argue that their real intent is simply to protect Social Security from future cuts. If that were the case, however, they would support privatization.

Rather than use Social Security as a way to add loopholes, policymakers should see the balanced budget amendment as absolutely essential to dealing with the looming Social Security crisis. In less than 15 years, Social Security will begin to run deficits — shortfalls that will grow rapidly to alarming levels. Defenders of the status quo say there is nothing to worry about until the Trust Fund runs out around 2030, but this ignores the fact that the Trust Fund is nothing more than the “IOUs” that the government has issued to itself.

As a result of this recurrent practice, the moment Social Security goes in the red shortly after the turn of the century, lawmakers will come under enormous pressure to deal with the system’s unfunded liabilities. Needless to say, this may require significant benefit reductions or crippling payroll taxes.3 To the extent that the government still is running large deficits when the Social Security crisis hits, the steps that must be implemented will have become even more severe.


  1. The “gross” federal debt is about $5.3 trillion, but this includes $1.5 trillion the Department of the Treasury owes to other parts of the federal government (such as the Social Security Trust Fund). Thus, this $5.3 trillion figure, like the Trust Funds themselves, is meaningless. The only debt that has any real economic meaning is the amount “held by the public” (in other words, the amount the government has borrowed from private credit markets).
  2. For those who doubt this could happen because politicians would be reluctant to add programs to Social Security that are not related to old-age retirement, the food stamps program is instructive. Even though welfare programs usually are administered by the Department of Health and Human Services, the food stamp program was given to the Department of Agriculture. Supporters put forward the weak rationale that the food people eat usually comes from farms, which is rather like arguing that housing programs should fall under the Department of the Interior because so much lumber comes from national forests. The real reason, however, was to create an alliance for more spending: Supporters of agriculture subsidies wanted votes from Members of Congress representing urban areas, and supporters of more welfare wanted votes from Members of Congress representing rural areas. Lumping these two programs together created precisely that dynamic.
  3. The ideal way to avoid the Social Security crisis would be through privatization, as Chile, Australia, and Great Britain already have done. For more detail, see Daniel J. Mitchell’s forthcoming Heritage Foundation paper on Social Security.
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