uploaded by mateo3470on Jun 7, 2011

John Brummett in his article “It may get personal in debt-limit end game,” Arkansas News Bureau, July 19, 2011 noted:

The White House is quietly encouraging the Reid-McConnell talks.

Meantime, there is talk of pandering to the tea party radicals in the unwieldy House by letting them pursue referral of a balanced-budget amendment to the Constitution.

Ratification would take years. If enacted, such an amendment would amount to the same abdication of political responsibility to make wise and responsible cuts in spending as has been evident in the debt-ceiling debate.

It is obvious to me that the Balanced Budget Amendment is needed because of the “abdication of political responsibility to make wise and responsible cuts in spending” that Brummett is talking about and we have all seen for decades.

The real debate in my view should be which variety of amendment should we pass. This is a series of posts I am doing on that subject. They come from Brian Darling’s excellent article, ” The House and Senate Balanced Budget Amendments: Not All Balanced Budget Amendments Are Created Equal,” Heritage Foundation, July 14, 2011. 

Abstract: Republicans in the House and Senate have announced that they will force votes on balanced budget constitutional amendments. While the Senate and House versions of the current BBA are similar, there are some important differences that Members of Congress and the American people need to understand. For example, the Senate version makes it more difficult to enact revenue-neutral tax reform, while the House version would waive its tax limitation in times of military conflict. How Congress resolves these differences could determine whether future Congresses and Presidents balance the budget without increasing taxes.

The President’s Budget

The House and Senate BBAs require that the President submit a balanced budget to Congress. This provision is subject to waiver during time of military conflict or war, but during times of peace, the President would be bound by the Constitution to submit balanced budgets to Congress each fiscal year.

The House and Senate versions differ on the constitutional requirements for the content of the President’s budget. Section 3 of the Senate version provides that two conditions must be met by the President’s submission to Congress. First, “total outlays do not exceed total receipts.” This provision is identical to the condition in Section 4 of the House version. Second, the Senate version adds a condition not included in the House version that “outlays do not exceed 18 percent of the gross domestic product of the United States for the calendar year ending before the beginning of such fiscal year.” The Senate version references “gross domestic product,” but the House version is silent on GDP.

There is one other significant difference. Section 2 of the House version caps spending at “18 percent of the economic output of the United States,” whereas the Senate version states (also in Section 2) that spending is capped at “18 percent of the gross domestic product of the United States” for the prior calendar, not fiscal, year. This provision will allow for different calculations with regard to how the 18 percent number is reached in both approaches.

In truth, both the House and Senate versions may become problematic. The House version is vague in that it does not explain who calculates “18 percent of the economic output of the United States.” The Senate version may not be transparent. Limiting growth in gross domestic product to the prior calendar year may essentially limit spending to less than 18 percent of GDP.

On average, growth in GDP has historically been at about 3 percent to 4 percent, which means that spending is capped closer to 17 percent of GDP for the current fiscal year. While capping spending at 17 percent of GDP might be desirable, it must be understood that “18 percent” calculated by looking back at a prior year’s GDP would result in a figure that is actually lower than 18 percent.

Tax Increases

The House and Senate BBAs are designed to make it difficult for Congress to use tax increases as a means to balance the budget. Once amended, the Constitution would contain a provision that would force a supermajority in both chambers to raise taxes on the American people in order to balance the budget, with certain exemptions in one version.

The House and Senate versions differ significantly on what measures would be subject to the tax limitation provision in the amendments. Section 4 of the Senate version subjects any measure that “imposes a new tax or increases the statutory rate of any tax or the aggregate amount of revenue” to a two-thirds vote of both chambers. Section 5 of the House version, however, merely states that “a bill to increase revenue” would trigger a constitutionally mandated two-thirds vote. The Senate language would encompass far more legislation and subject that legislation to a supermajority vote.

For example, if a measure were to create a new tax yet cut taxes commensurately in another area of the tax code, the Senate version would subject that to a two-thirds vote; the House version would allow that measure to go forward under the regular order of the House and Senate. The same would happen if one tax rate was increased and another was to be decreased in a revenue-neutral manner.

The Senate version would make revenue-neutral tax reform much more difficult to pass with a two-thirds vote, but it would be a strong deterrent for Members to cut taxes on one sector of society while raising taxes on another.

Making it more difficult to conduct revenue-neutral tax reform is a big concern for many conservatives. Consequently, some conservatives may need to rethink the specifics of this provision. Conservative revenue-neutral tax reform would raise taxes on those taxpayers who lose exemption and deductions and impose one rate that would initially take in the same amount of revenue.

The Senate language may deter using the tax code as a means to forward the cause of class warfare, but conservatives would be effectively abandoning revenue-neutral tax reform if they allowed the language in the Senate BBA to be sent to the states. There are serious trade-offs in this debate and consequences for the specific working of the House versus the Senate provision imposing supermajorities to raise revenues or taxes.

Also, if the provisions relating to a declaration of war or military conflict are satisfied by the House version, then the Congress may increase taxes through the regular order. The Senate version specifically makes the tax increase provision subject to a two-thirds vote waiver during time of war or military conflict. The waiver of a BBA during time of war or “military conflict” under the Senate version does not affect the application of the supermajority requirement to raise taxes; there is no such exemption in the House version.