As Washington struggles to find a way to raise the debt ceiling, one piece likely left out of a compromise is the Balanced Budget Amendment. That’s a shame.
While few economists of any stripe endorse the proposed BBA text in recent House and Senate bills,something has to change in the way policymakers behave, or our fiscal challenges will only get worse. Let’s not forget that none of the plans in play – whether $2 trillion, $3 trillion or $4 trillion – cut even half the projected 10-year $10.5 trillion baseline gap.
The basic cause of rising national debt is explosive entitlement spending — and the framework that supports them.
Until the 1970s, the ratio of federal debt to gross domestic product declined during peacetime and spiked only during wartime. What changed? The growth of entitlement spending, and a lack of rules or customs to check it. With the introduction of Medicare in 1965, and then structural reforms to Social Security in 1972, Congress made binding expenditure commitments well into the future, beyond the horizon of political consequences. Without an institutional reform to constrain political behavior, deficit spending is unlikely to stop.
The idea of a balanced budget amendment is favored by 65 to 70 percent of Americans, according to recent polls. But the devil is in the details. Some version of the BBA has passed one house of Congress before —in 1982, again in 1995 and now in 2011 — but failed to pass both and move onto the states.
Rather than let this momentum fade once this debt ceiling deal is done, Washington should reconsider a budget amendment. But better structured. Here are four modifications that will improve the BBA, enhance its chances of becoming law and just maybe preempt the coming fiscal crisis.