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All a balanced budget means is that you may not borrow money to pay govern. ment bills. Once you prohibit the borrowing of money, then you must do one of two things: Either reduce your expenditures or increase your taxes so that you can pay in cash for your expenditures. It is not likely that the expenditures will be reduced very much because most of the items—not all of the federal budget are rather fixed. But whatever the expenditures are, you have to pay in cash, and that necessity means higher taxes, not lower taxes.
I do not see any connection, at all, historically, between the budget deficits and inflation. We have had many years where we had tremendous budget deficits with virtually no inflation.
Inflation is an evil thing. but there are many factors that produce inflation that are totally irrelevant to the whole question of deficits and debt.
Q-Would requiring a balanced budget allow the government enough flexibility to act in times of sharp ups and downs in the business cycle?
KEATING: It certainly is possible to draft an amendment that allows for no flexibility. That's not what we're looking for, and I can't possibly foresee any amendment being proposed and ratified by the 38 states that would be too inflexible.
What we're looking for is an amendment which raises the barriers and makes it harder to run deficits that are planned in advance. Most likely this would require some sort of super majority vote; in other words, a two-thirds vote to run a planned deficit for any given fiscal year.
We haven't had a surplus in 20 years. except for one year. But that's not to say that we won't have surpluses in the future that we could apply to a recession.
If a deficit was considered necessary by the appropriate vote, then you could run a deficit for that year. Proposals that we favor would allow for temporary deficits to respond to economic needs. But not without sufficient checks on them, such as using them as an expenditure for next year.
TYLER: From 1933 down to 1979 we've had 50 years of no depression. Now if you examine the half-century before 1933, you had
predictable depressions. In 1933, we found a way of coping with them, and that way was to have the government intervene in the economy in or to boost buying power at a time when the economy was in a slump, and by stimulating buying power, it was pessible to begin to restore the economy.
If the government of the United States is not free to borrow when necessary in order to overcome a crisis, whether that crisis is an economic recession or that crisis is a war (that's when we borrow most heavily), or when that crisis may be some kind of an internal national catastrophe-a riot or explosion or an earthquake—then the government is in a straitjacket and is unable to respond to necessary circumstances.
Q-If we assume that a mandatory balanced budget is desirable, is the constitutional convention the best way to do it.
KEATING: The constitutional convention petition process is obviously a necessary step.
We feel since Congress was part of the problem, and since the amendment vould limit the powers of Congress, it is unlikely that Congress would propose this amendment on its own without pressure from the outside.
In this case, it's from the states, and judging from the past, it's one of the most effective pressures that can be put on Congress to propose an amendmeot.
TYLER: A Constitutional Convention is kind of a dangerous instrumentality. Most people would prefer to do it in the traditional way, if you're going to do it it all.
If the matter comes before the U.S. Congress, you have a body of 535 reasonshiş intelligent, reasonably responsible human beings to debate the subject.
You also are submitting the matter to people who have had to wrestle for most of their waking hours with questions of expenditures and income, so they have some acquaintance with the matter.
Q-How likely is it that a constitutional amendment calling for a mandatory balanced federal budget will be adopted, either through tradition means of through a convention?
KEATING: I think it's very likely. I think congressional action is more likely than a convention.
Thirty states have adopted the necessary resolution out of a required 34. Who we reach that point (34) it will force Congress into one of two things: Either i propose the amendment, or to call a constitutional convention.
We'll reach that point of 34 states adopting resolutions by the 1980 election. I would say that next year the amendment will be proposed by Congress and that it will be ratified within a three-year period.
TYLER: I think it's very unlikely.
Let's assume you have a constitutional convention. At that point there would be serious debate, and the facts would all be presented to the American people and the American people, I think, would reject it. I think the convention would reject it.
When they discover that it isn't a "quicky” way to reduce taxes, and that will be perfectly obvious the moment they sit down and give it serious thought. I don't think there will be any such amendment proposed.
If it gets to the states, the states will absolutely not do it. The first thing to go (in a balanced budget) will be aid to the states. I do not see state legislatures ratifying a constitutional amendment that says each of them will lose several billions of dollars in federal aid a year. The (proponents) just haven't thought it through.
David Keating is director of research of the National Taxpayers Union in Washington, D.Č. Keating, 24, has been the group's liaison with state legislators and other people interested in calling a convention to consider amending the U.S. Constitution to require a balanced federal budget. The nonprofit group claims to have 116,000 dues-paying members.
Gus Tyler is assistant president of the International Ladies' Garment Workers Union. Åmong other things, Tyler heads the union's department of politics, education, and staff training. He has written nine books on politics, economics, and urban affairs and is a nationally syndicated columnist. Tyler also has taught at a number of universities,
(From Business Week, June 18, 1979)
A DEBATE OVER FISCAL DISCIPLINE FOR CONGRESS
FEARS THAT MANDATORY BUDGET-BALANCING
OULD BE A SERIOUS MISTAKE
In the aftermath of California's Proposition 13, which cut real estate taxes by 50%, much of the public's frustration with the federal government's inability to control runaway inflation has been channeled into efforts to bring the federal budget into balance. Some 30 states have petitioned Congress to hold a constitutional convention to consider an amendment requiring a balanced budget. But both Democratic and, surprisingly, more and more Republican economists argue that mandatory budget-balancing would be a serious mistake.
Democratic economists say that a constitutional amendment requiring a balanced budget would handcuff the federal government's ability to stabilize the economy, especially when it slows appreciably. “Right now, balancing the budget by cutting spending would turn a mild downturn into a genuine recession,” says Michael V. McCarthy, a forecaster at the Wharton School.
The Republicans also oppose budget-balancing, but not for the same reasons. They fear that mere balance would not stop Congress from increasing federal expenditures. “All Congress would have to do is to raise taxes and balance at a higher level,” explains Paul W. MacAvoy, Yale economist and former member of the Council of Economic Advisers.
SLIM CHANCES Instead, the Republican economic establishment favors a constitutional amendment that would limit the growth of federal expenditures directly and thereby cut the size of government. And it is over this issue that an economic debate is raging, with an intensity not seen since the knock-down-drag-out battles of the 1960s between the monetarists and Keynesians.
Not that a constitutional amendment requiring either a balanced budget or an expenditure limitation is very likely right now. Congress is leery of having its hands tied. A deep recession might strike the balanced-budget movement a mortal blow by showing the need for a dose of Keynesian deficit spending to bring the economy around. Some of the 30 petitions already calling for a Constitutional Convention to consider a balanced-budget amendment are probably invalid, experts say. And the prospects of getting 34 valid petitions submitted —the number needed to force a Constitutional Convention—this year are bleak. Nevertheless, the issue is unlikely to die easily. It could be central to next year's primaries and the Presidential campaign itself.
Republican economists are pushing a specific proposal, drafted by a committee that includes Nobel laureate Milton Friedman and former CEA Chairman Paul McCracken, under the auspices of the National Tax Limitation Committee. The amendment would allow federal expenditures to grow only as fast as the gross national product during periods of stable prices. But if inflation exceeded 3.0 total federal outlays would be held below the increase in GNP. Friedman explains that if GNP grew by 10%, of which 7% was inflation, federal outlays would be allowed to increase by only 9%. The government is penalized by one-quarter of the excess of 7% over the 3% allowable inflation rate-or one percentage point. This is deducted from the GNP increase of 10%.
According to Claremont Graduate School economist W. Craig Stubblebine, chairman of the committee, the amendment, in effect, says, “Look, Congress, if you fail to adopt a set of policies that keeps the rate of inflation within 3%, then your share of ĜNP will go down.” This, he argues, would provide Congress with incentive to correct some of its inflationary policies like acreage allotments, minimum wages, and subsidies.
The goal is to end, as Friedman says, “the persistent tendency for federal spending to absorb an ever-larger fraction of our income." He points out that the federal share of GNP was 22.6% in 1978 but would have been only 17.7% under his proposal. But the University of Minnesota's Walter W. Heller, (EA chairman under Presidents Kennedy and Johnson, maintains that the Constitution does not have to be amended to impose additional fiscal discipline on Congrese Federal spending will rise only 7.7% from 1979 to 1980, he says, compared with annual increases of 12.2% from 1973 to 1978. This will lower the federal share of GNP to 21.2% in 1980.
Heller credits much of this heightened fiscal restraint to the success of the Congressional Budget Act of 1974, which requires Congress to set aggregate spending limits and then trim expenditures for particular programs to fit into the totals. “Congress is acting much more responsibly under the new budgeting procedures, and that is showing up in tighter spending,' asserts Heller.
More fundamentally, Heller objects to a constitutional limit on federal expend:tures because it is “misdirected.” “What we should be directing ourselves to is the efficiency of government spending, what the money is spent for, and the effects of regulation," he says. Those backing the limitation amendment "don't look at the whole horse,” according to Heller.
Some Republican economists also disagree with the broad-brush limitation on government spending. Economist_Robert E. Lucas Jr., Chicago Universiir's conservative heir apparent to the Friedman mantle, maintains that each federal program should be evaluated on its own merits according to strict criteria of economic efficiency. While he feels such evaluations would "lower federal expedie ditures a lot,” he opposes comprehensive limitations. “There is no economic case for expenditure limitation-only a political one,” he says.
But Friedman argues that strict limitations are required because of a "defect in our political structure.” There is a bias for more government spending than the people really want. According to Friedman, the lobbies for increased spending for specific programs are better organized than the diffuse constituency opposed 10 increases in total spending and taxation. There is, he says, “no way in which the public at large can express its opinion about the government budget as a whole."
Government buying. Not surprisingly, Yale's James Tobin, CEA member unde Kennedy, disagrees that there is too much public spending. “Just look at how dirty public parks are, compared with the grounds of, for example, the General Electric headquarters complex.” Furthermore, Tobin looks at the entire goverte ment sector of the economy-federal, state, and local-and concludes thai it has not grown as fast as the Republican economists make it sound. He calculates that the total government sector is purchasing about the same amount of goods and services as in 1965. And after correcting for inflation, which hits labor-intensite government purchases harder than private purchases, Tobin shows that "ibe real volume of government purchases declined relative to private purchases" between 1965 and 1978.
Yet transfer payments such as Social Security and medicare have grown, concedes Tobin, from 3.2% of GNP in 1956 to 8.6% in 1978. Tobin maintains that such transfers "have contributed to a sizeable reduction in poverty and to s generally more humane society.” Adds Heller: "There are still a lot of unmet social needs in this country' that would be short-circuited by an expenditure amendment.
One of the most difficult problems faced by those who want to limit expenditures is how to stop Congress from finagling with government statistics and definitions. James T. McIntyre Jr., director of the Office of Management & Budget, is concerned that tying federal expenditures to GNP would give Congress or a future Administration an incentive to alter the definition of GNP. By redefining GNP SO it is bigger, Congress would then be able to expand government spending. “You could make GNP a lot bigger just by including unmarketed housewives' services, or the illicit drug traffic,” McIntyre says.
But those familiar with the budget process note that there are many ways of getting around an expenditure limitation. Instead of collecting taxes and then spending the proceeds on various programs, Congress could merely provide tax credits to the private sector for carrying out the same programs. Such tax credit espenditures are widely used to subsidize the hiring of structurally unemployed workers.
AN APPEAL FROM 30 STATES TO BALANCE THE BUDGET VIA A CONSTITUTIONAL
“Political pressures." Or Congress could reduce federal expenditures further by setting up public authorities. “All the expenses of the Postal Service were outlays when it was a federal department,” explains Tobin. “Now it is a public corporation, and only the subsidy is an outlay."
Such problems do bother Stubblebine. “My mind boggles at how you would pass an amendment to deal with tax-credit expenditures,” he confesses. He would prefer to "let the political pressures work their way out,” and he is confident that, if Congress tried to circumvent the purpose of the amendment, it would “set the stage for another constitutional amendment to deal with those issues."
But excessive reliance on the Constitution or other ironclad agreements for dealing with current economic problems is exactly what disturbs the Democratic team. In spite of the Friedman proposals' built-in methods of overriding constitutional spending limitations during national emergencies, Heller feels that it still puts national economic policy into a “straitjacket.” Nobel laureate Paul Samuelson maintains that, historically, "each such attempt at permanent fine tuning-like the gold standard and pegged exchange rates—has resulted in specific economic crises and inefficiencies."
Tobin agrees: Amendments freezing currently prevalent economic views are inappropriate. The Constitution is simple, beautiful, and dignified,” he says. "To add to it the garbage of gross national product-nominal and real-3% inflation, on- and off-budget outlays, and estimated revenues is obscene.”
(From the Washington Post, July 9, 1979)
OMB DIRECTOR SAYS BALANCED BUDGET MAY BECOME ENERGY BATTLE
(By David S. Broder) LOUISVILLE, July 8— President Carter's budget director hinted strongly today that the goal of a balanced budget next year may have to be sacrified in the battle for energy independence.
James T. McIntyre, Jr., director of the Office of Management and Budget, told the opening session of the National Governors Association that the energy development program Carter is framing at the Camp David meetings "may mean forgoing or postponing for a short time the balanced budget, but in my judgment, that is a tradeoff worth making.”
Carter and McIntyre have been aiming at submitting next January a balanced budget for fiscal 1981, the 12 months to begin Oct. 1, 1980. Today's comments from the budget director were the strongest indication so far that the adverse energy developments of recent months may put that goal out of reach.
Carter had pledged during his campaign to balance the budget by 1980, but a year ago moved the deadline back to 1981.
McIntyre said in an interview after the session that “the economy is weakening,” in large part because of the oil price increases imposed by the Organization of Petroleum Exporting Countries (OPEC), “That has caused us to revise our economic assumptions, which will be made public Thursday night when the administration submits its revised estimates for fiscal 1980, McIntyre said.
Jack H. Watson, Jr., assistant to the president, told the governors that the administration now expects the size of the American economy-measured by the Gross National Product-to drop 1 percent in 1979 and another 1 percent in 1980. Two consecutive quarters of economic decline are viewed as a recession.
The slowdown in the economy predicted by both men would reduce government revenues. But the OPEC price increases have fueled inflation and Lrought Carter to the point of recommending higher energy development expenditures than previously had seemed likely.
The combination of those factors, McIntyre appeared to be saying, is likely to make a balanced budget in 1981 impossible.
He stopped just short of making that as a flat statement, saying "the numbers are awfully close" and the outcome is not certain. But McIntyre told the governors that the president wants to put additional resources into energy development, and “if we have to postpone a balanced budget to deal with such a national
then that would be my recommendation to the president." “My own personal philosophy and position is to try to balance the budget if we can,” he said, “but not at the expense of risking the security and the energy self-sufficiency that we need for this nation.”
McIntyre and Watson fielded questions from the governors for about an hour after Vice President Mondale, substituting for the president, had made a ples for national unity on energy.
Watson conceded to several New England governors that refineries are 'running slightly behind” in building up distillate production to assure an adequate supply of home heating oil for winter. But he said the figures were being monitored closely and “we will do whatever needs to be done" to see that homeowners do not sulei.
Other governors pressed the two officials for early action on energy problems ranging from nuclear waste disposal and guaranteed supplies of diesel fuel fer the autumn harvest to uniform truck weight limits on interstate highways and the speeding of a new pipeline from Alaska to the Midwest. The answers the governors received were sympathetic but noncommittal.
Watson did say, however, that Carter was considering asking Congress to create an “energy mobilization board,” which would have authority to waive normal procedures and regulations to hasten the construction of high-priority energy projects.
And McIntyre suggested that the amount of money set aside from the proposed oil “windfall profits” tax to subsidize low-income users of fuel oil may be increased beyond the $800 million previously discussed.
(Universal Press Syndicate, Jan. 2, 1990)
MORE TINKERING WITH THE CONSTITUTION
(By James J. Kilpatrick) Washington-It is getting to be just about impossible to find anyone in high position who doesn't want to halt the practice of recurring federal deficits. B:10 I am very dubious about trying to accomplish this salutary end by means of a constitutional amendment.
That is what is proposed in Senate Joint Resolution 126, reported out of a Judiciary subcommittee a couple of weeks ago. The proposed amendment is the product of endless writing and rewriting upon the art of well-intentioned men who abhor the reckless business of recurring red ink budgets. They want to put an end to the evil, and they are convinced that only a constitutional amendment wil suffice.
THIS IS THEIR AMENDMENT: “1) The Congress shall adopt for each vear a budget which shall set forth the total receipts and expenditures of the United States. No budget in which expenditures exceed receipts shall be adopted unless three-fifths of each house of the Congress approve such budget by a roll-call vote directed solely to that subject. The