Balanced Budget Amendment Is Ill-Advised and Economically Harmful

We issued two papers today on proposals to add a balanced budget amendment to the U.S. Constitution:

• This report explains that a balanced budget amendment — including the version that the House Judiciary Committee is expected to pass next week — would be a highly ill-advised way to address the nation’s long-term fiscal problems.  It would threaten significant economic harm while raising a host of problems for the operation of Social Security and other vital federal functions.The economic problems are the most serious, and they would pertain to any version of a constitutional balanced budget amendment.  By requiring a balanced budget every year, no matter the state of the economy, such an amendment would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses.  That’s because the amendment would force policymakers to cut spending, raise taxes, or both just when the economy is weak or already in recession — the exact opposite of what good economic policy would advise.

• This report explains that the House Judiciary Committee’s proposal would force Congress to enact the Republican Study Committee’s extreme budget plan — which cuts federal expenditures by more than $9 trillion over the coming decade — or something similar to it.  Even the House-passed budget plan of House Budget Committee Chairman Paul Ryan would not pass muster.