A Federal Balanced Budget Amendment Would Threaten the Economy and Force Deep Program Cuts

To Californians accustomed to hearing about big budget challenges in Sacramento, debates in Washington, DC, over how to balance the federal budget may seem unconnected to our daily lives. In fact, federal budget decisions have a significant impact on the Golden State. Federal dollars support an array of programs and services that touch the lives of all Californians, as we show in our new Policy Basics. For example, of the more than $330 billion in federal funds spent in California in federal fiscal year 2010 – which ended September 30, 2010 – more than one-third (36 percent) paid for Social Security and Medicare benefits, and another 12 percent supported an array of programs that provide assistance to millions of Californians, such as unemployment insurance (UI), CalFresh food assistance, and veterans benefits.

The importance of federal spending in California helps put into perspective the debate in the House of Representatives this week over whether to amend the US Constitution to require a balanced federal budget each year. While the balanced budget amendment (BBA) was defeated in the House today, the Senate is required to vote on the BBA by the end of the year as part of the “debt-ceiling” deal reached in August. A BBA “would threaten significant economic harm,” according to a recent report by the Center on Budget and Policy Priorities (CBPP). Why? Because it “would force policymakers to cut spending, raise taxes, or both just when the economy is weak or in recession – the exact opposite of what good economic policy would advise.”

Furthermore, if the votes to raise revenues cannot be found – a likely prospect – then the federal budget would have to be balanced through cuts alone. As a result, the CBPP estimates that a BBA could force deep reductions across a range of programs. Social Security, for example, could be cut by almost $1.2 trillion between 2018 and 2021, which we estimate would mean a reduction of roughly $110 billion to income support for millions of California retirees and people with disabilities. An estimated $750 billion reduction to Medicare between 2018 and 2021 would translate into an $83 billion cut in California, affecting millions of California seniors.

A persuasive case against the BBA was recently made by Rep. David Dreier, a 16-term, conservative Republican from southern California. Dreier, who supported a BBA in 1995, reminded his House colleagues this week that Congress managed to balance the federal budget in the late 1990s without amending the US Constitution. “I was wrong,” Dreier said of his support for a BBA in 1995. “Two short years later, we balanced the federal budget … without touching that inspired document, the US Constitution.” Recent experience in California also argues against a BBA. California’s restrictive budget rules – which hamstring fiscal policymaking – show that changing the budget process will not bring a budget into balance. Our nation, like our state, needs significant new revenues to responsibly balance its budget.

—Scott Graves