海角大神

The balanced budget amendment's $300 billion error

The Senate Republicans balanced budget amendment contains a striking error, Marron writes.

|
Jim Young/Reuters/File
The Capitol building is seen at sunrise on Capitol Hill in Washington.

The balanced budget amendment introduced by Senate Republicans yesterday contains a striking error. As written, it would limit federal spending much more than they claim or, I suspect, intend (I said听听back in 2011, when this first came up).

The senators want to balance the budget by limiting spending rather than raising tax revenues. They thus propose the following, according to a听听from sponsor Senator John Cornyn:

Requirement to Balance the Budget. With limited exceptions, the federal budget must be balanced.

Presidential Requirement to Submit a Balanced Budget. Prior to each fiscal year, the President must submit to Congress a balanced budget that limits outlays to 18 percent of GDP.

18 Percent Spending Cap. With limited exceptions, Congress must limit outlays to 18 percent of GDP.

That 18 percent figure is in line with average tax revenues over the past four decades, but well below average spending, which has been about 21 percent.

So what鈥檚 the error? The way听听would implement the spending limit:听

Total outlays for any fiscal year shall not exceed 18 percent of the gross domestic product of the United Statesfor the calendar year ending before the beginning of such fiscal year, unless two-thirds of the duly chosen and sworn Members of each House of Congress shall provide by law for a specific amount in excess of such 18 percent by a roll call vote. (Emphasis added.)

The amendment thus doesn鈥檛 limit spending to 18 percent of the current fiscal year鈥檚 GDP; it limits it to 18 percent of GDP in the previous calendar year.

At first glance that may not sound like much. But it works out to be 21 months during which inflation and real growth will almost always be boosting GDP. For example, fiscal 2014 starts in October of this year. If the amendment were effective today, spending would be limited to 18 percent of听last year鈥檚听GDP鈥攖hat鈥檚 calendar 2012, which started (of course) in January 2012.

That 21-month lag has a big effect on the spending limit. Consider fiscal 2018, the first year it could conceivably take effect (because of a waiting period in the amendment). The Congressional Budget Office听听that nominal GDP that year will be $20.9 trillion. So the Republicans鈥 fiscal 2018 spending limit ought to be 18 percent of that, a bit less than $3.8 trillion. But the amendment would look back to calendar 2016 to set the limit. CBO estimates that year鈥檚 GDP at roughly $19.1 trillion, nearly $2 trillion less than for fiscal 2018. The amendment would thus limit fiscal 2018 spending to a bit more than $3.4 trillion. That鈥檚 only 16.4 percent of GDP that year, about $330 billion less than the Republicans鈥 stated goal.

If you do the same math for the remaining years in CBO鈥檚 latest outlook, fiscal 2019 through 2023, that gap never falls below $300 billion.

The same drafting error came up when GOP senators introduced a balanced budget amendment in 2011. When, several commentators suggested that perhaps it wasn鈥檛 an error, but rather a sneaky way to try to limit spending even further. I am not so cynical. Drafting a spending target based on GDP isn鈥檛 easy, since you don鈥檛 know what future GDP will be. So I can understand why someone drafting this might try to use a measure of GDP that鈥檚 already known, albeit subject to much revision. But they goofed.

It鈥檚 disappointing that no one has fixed this error in the intervening 18 months. I am not a fan of an arbitrary constitutional limit on spending鈥攅ven with a supermajority escape valve鈥攂ut as a fan of arithmetic, let me offer one simple approach: use a GDP forecast from whatever entity is responsible for the spending forecast. For the president鈥檚 budget submission, that would be the Office of Management and Budget, and for the congressional process it would be either CBO or the House and Senate Budget Committees. That would make the GDP forecast even more politically sensitive, of course, but it鈥檚 better than a formula that misses its intended target by $300 billion each year.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
海角大神 was founded in 1908 to lift the standard of journalism and uplift humanity. We aim to 鈥渟peak the truth in love.鈥 Our goal is not to tell you what to think, but to give you the essential knowledge and understanding to come to your own intelligent conclusions. Join us in this mission by subscribing.
QR Code to The balanced budget amendment's $300 billion error
Read this article in
/Business/Donald-Marron/2013/0214/The-balanced-budget-amendment-s-300-billion-error
QR Code to Subscription page
Start your subscription today
/subscribe