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7 IRET Congressional Advisory 1 (1992)

handle is hein.taxfoundation/iretcgadv0007 and id is 1 raw text is: June 4, 1992 No. 7 FOR REAL BALANCE, A BALANCED BUDGET CONSTITUTIONAL AMENDMENT SHOULD ALSO MAKE IT HARDER TO RAISE TAXES This may be the year that Congress finally passes a balanced budget amendment. The House almost approved one in 1990, and support has increased since then. This month, the House and Senate will vote on several proposed amendments. Grass-roots and Congressional sentiment for an amendment are largely born out of frustration. Although elected officials frequently condemn budget deficits, they have not managed to balance the federal budget even once in nearly a quarter century. These seemingly perpetual deficits have occurred despite official assurances in most years that deficits were on a downward path and would soon disappear. Moreover, past attempts to reform the Congressional budget process have either been ineffectual or made matters worse. For instance, although Congress and the Bush Administration promised that the 1990 budget agreement would staunch the red ink, the 1992 deficit has ballooned to almost $400 billion, largely because generous spending increases were built into the 1990 budget deal and because the deal's large tax hikes have deepened the economic slowdown. Although people have lost patience with the budget deficit and are extremely concerned about its effects, there is enormous confusion about exactly how the deficit harms the economy. The widely held fear that Americans are living beyond their means when the government runs a budget deficit is largely unfounded. So, too, is the position expounded at length by Democrats in the 1980s that budget deficits elevate real interest rates and choke off investment. Instead, the greatest danger of deficits may be that they conceal the true costs of government spending programs. Because government programs financed by borrowing appear to be less expensive than they really are, people demand and members of Congress vote for too many government services. No wonder government programs have expanded so rapidly over the last generation - with deficit financing, government services look like terrific bargains because much of their true cost is screened from view. Most of the balanced budget proposals before Congress would end Washington's casual acceptance of never ending deficits by prohibiting federal spending from exceeding federal revenues unless three-fifths of the total members of each House of Congress vote to suspend the restriction that year. (The plan unveiled by the House Democratic leadership is a conspicuous exception to this supermajority requirement.) Unfortunately, requiring a balanced budget affords no guarantee that public policy makers' decisions about how much to spend on what kinds of government activities will be effectively disciplined. Also needed is some effective constraint on tax increases, without which a balanced budget requirement might well be met by sharp increases in both spending and taxes. Particularly in view of policy makers' penchant for raising taxes that are largely hidden from the majority of the public, it is imperative that a balanced budget requirement be paired with new restrictions on Washington's ability to raise taxes. If that is not done, government spending will surely remain too high and the full burden of taxation too great. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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