Balanced Budget Amendment
Overview
 
A balanced-budget amendment is a constitutional rule requiring that the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...

 cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.

Balanced-budget provisions have been added to the constitution
Constitution
A constitution is a set of fundamental principles or established precedents according to which a state or other organization is governed. These rules together make up, i.e. constitute, what the entity is...

s of most U.S. state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

s, the Basic Law of Germany
Basic Law for the Federal Republic of Germany
The Basic Law for the Federal Republic of Germany is the constitution of Germany. It was formally approved on 8 May 1949, and, with the signature of the Allies of World War II on 12 May, came into effect on 23 May, as the constitution of those states of West Germany that were initially included...

, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

 and the Swiss Constitution
Swiss Federal Constitution
The Federal Constitution of 18 April 1999 is the third and current federal constitution of Switzerland. It establishes the Swiss Confederation as a federal republic of 26 cantons , contains a catalogue of individual and popular rights , delineates the responsibilities of the...

. It is often proposed that a balanced-budget rule be added to the national United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

. Most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority
Supermajority
A supermajority or a qualified majority is a requirement for a proposal to gain a specified level or type of support which exceeds a simple majority . In some jurisdictions, for example, parliamentary procedure requires that any action that may alter the rights of the minority has a supermajority...

 vote.
In November 2011 the Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

n coalition government agreed to amend its constitution and introduce a German style Schuldenbremse ("debt brake").
Encyclopedia
A balanced-budget amendment is a constitutional rule requiring that the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...

 cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.

Balanced-budget provisions have been added to the constitution
Constitution
A constitution is a set of fundamental principles or established precedents according to which a state or other organization is governed. These rules together make up, i.e. constitute, what the entity is...

s of most U.S. state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

s, the Basic Law of Germany
Basic Law for the Federal Republic of Germany
The Basic Law for the Federal Republic of Germany is the constitution of Germany. It was formally approved on 8 May 1949, and, with the signature of the Allies of World War II on 12 May, came into effect on 23 May, as the constitution of those states of West Germany that were initially included...

, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

 and the Swiss Constitution
Swiss Federal Constitution
The Federal Constitution of 18 April 1999 is the third and current federal constitution of Switzerland. It establishes the Swiss Confederation as a federal republic of 26 cantons , contains a catalogue of individual and popular rights , delineates the responsibilities of the...

. It is often proposed that a balanced-budget rule be added to the national United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

. Most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority
Supermajority
A supermajority or a qualified majority is a requirement for a proposal to gain a specified level or type of support which exceeds a simple majority . In some jurisdictions, for example, parliamentary procedure requires that any action that may alter the rights of the minority has a supermajority...

 vote.

Austria

In November 2011 the Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

n coalition government agreed to amend its constitution and introduce a German style Schuldenbremse ("debt brake"). This will force the government to reduce its debt level to 60% of gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

 (GDP) by 2020.

Estonia

The balanced budget has been one of the foundations of the economic policy of newly independent Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

.

Germany

In 2009 Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

's constitution was amended to introduce the Schuldenbremse ("debt brake"), a balanced budget provision. This will apply to both the federal government and the Länder (states). From 2016 onwards the federal government will be forbidden to run a deficit of more than 0.35% of GDP. From 2020, the states will not be permitted to run any deficit at all. The Basic Law permits an exception to be made for emergencies such as a natural disaster or severe economic crisis.

Italy

In 2011 Italian Prime Minister Silvio Berlusconi
Silvio Berlusconi
Silvio Berlusconi , also known as Il Cavaliere – from knighthood to the Order of Merit for Labour which he received in 1977 – is an Italian politician and businessman who served three terms as Prime Minister of Italy, from 1994 to 1995, 2001 to 2006, and 2008 to 2011. Berlusconi is also the...

 promised to balance the budget by 2013, and to add a balanced budget amendment to the Constitution of Italy
Constitution of Italy
The Constitution of the Italian Republic was enacted by the Constituent Assembly on 22 December 1947, with 453 votes in favour and 62 against. The text, which has since been amended 13 times, was promulgated in the extraordinary edition of Gazzetta Ufficiale No. 298 on 27 December 1947...

.

Poland

Poland's constitution
Constitution of Poland
The current Constitution of Poland was adopted on 2 April 1997. Formally known as the Constitution of the Republic of Poland , it replaced the temporary amendments put into place in 1992 designed to reverse the effects of Communism, establishing the nation as "a democratic state ruled by law and...

 (adopted in 1997) caps the public debt at 60% of GDP - the government cannot take on any financial obligations that would cause that limit to be exceeded. To ensure this level is never breached, Poland has a self-imposed debt threshold of 55% of GDP, and the government must take action to balance the budget once this level is exceeded.

Spain

In 2011 the Spanish Constitution was amended to require a balanced budget at both the national and regional level. The amendment states that public debt can not exceed 60% of GDP, thought exceptions would be made in case of a natural catastrophe, economic recession or other emergencies. The changes will also require the government to stick to EU annual deficit limits of 3% of GDP.

Switzerland

After years of rising deficits and debt in the 1990s, Switzerland's citizens adopted the debt brake as a constitutional amendment in 2001. The rule was implemented starting in 2003. It states that each year, the budget must be in balance, adjusted for economic conditions. This adjustment is made by multiplying expenditures by a cyclical factor (the ratio of trend real GDP to expected real GDP), thus either allowing for deficits during recessions or forcing lawmakers to have surpluses during booms. Essentially, the rule calls for structural balance in each year and absolute balance over the course of a business cycle. So if lawmakers want to have expansionary fiscal policy during recessions, they need to pay for it by saving up during good economic times. The rule did initially allow for "extraordinary spending" if a qualified parliamentary majority approved, but recent changes have made this spending count as normal expenditures.

U.S. states

Every US state other than Vermont
Vermont
Vermont is a state in the New England region of the northeastern United States of America. The state ranks 43rd in land area, , and 45th in total area. Its population according to the 2010 census, 630,337, is the second smallest in the country, larger only than Wyoming. It is the only New England...

 has some form of balanced budget amendment; the precise form varies. Indiana has a state debt prohibition with an exception for "temporary and casual deficits," but no balanced budget requirement. It has around $18 billion in outstanding state debt. The governor is not legally required to submit a balance budget, the legislature is not required to approve appropriations that are within available revenue, and the state is not required to end the year in balance. An unusual variant is the Oregon kicker
Kicker (Oregon tax rebate)
The Oregon tax rebate, commonly referred to as the kicker, is a rebate given to both individual and corporate taxpayers in the U.S. state of Oregon when a revenue surplus exists. The Oregon Constitution mandates that the rebate be issued when the calculated revenue for a given biennium exceeds the...

, which bans surpluses of more than 2% of revenue by refunding the money to the taxpayers. Keynesian economists
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 such as Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...

 have argued that state-level balanced budget amendments worsened the late-2000s recession by forcing states to cut services in the middle of a slump.

U.S. federal government

The U.S. federal government is not bound by any balanced budget provision, but there have been various proposed amendment
Constitutional amendment
A constitutional amendment is a formal change to the text of the written constitution of a nation or state.Most constitutions require that amendments cannot be enacted unless they have passed a special procedure that is more stringent than that required of ordinary legislation...

s to the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

 which would introduce such a rule. Most proposals contain a supermajority exception allowed for times of war or national emergency.

There is dispute among U.S. economists, due to varying macroeconomic theories
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

, with regard for the need for a balanced budget to achieve long term economic growth.

History

The Articles of Confederation and Perpetual Union
Articles of Confederation
The Articles of Confederation, formally the Articles of Confederation and Perpetual Union, was an agreement among the 13 founding states that legally established the United States of America as a confederation of sovereign states and served as its first constitution...

 had granted to the Continental Congress
Second Continental Congress
The Second Continental Congress was a convention of delegates from the Thirteen Colonies that started meeting on May 10, 1775, in Philadelphia, Pennsylvania, soon after warfare in the American Revolutionary War had begun. It succeeded the First Continental Congress, which met briefly during 1774,...

 the power
to borrow money, or emit bills on the credit of the United States, transmitting every half-year to the respective States an account of the sums of money so borrowed or emitted

And, with this as a model Article I, Section 8, Clause 2 of the Constitution grants to the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 the power
To borrow money on the credit of the United States;


At the time that the Constitution came into effect, the United States had a significant debt, primarily associated with the Revolutionary War
American Revolutionary War
The American Revolutionary War , the American War of Independence, or simply the Revolutionary War, began as a war between the Kingdom of Great Britain and thirteen British colonies in North America, and ended in a global war between several European great powers.The war was the result of the...

. There were differences within and between the major political coalitions over the possible liquidation or increase of this debt. As early as 1798, Thomas Jefferson wrote
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government; I mean an additional article taking from the Federal Government the power of borrowing. I now deny their power of making paper money or anything else a legal tender. I know that to pay all proper expenses within the year would, in case of war, be hard on us. But not so hard as ten wars instead of one. For wars could be reduced in that proportion; besides that the State governments would be free to lend their credit in borrowing quotas.

(Although Jefferson made a point of seeking a balanced budget during the early years of his administration, he seems to have later reversed himself in purchasing the Louisiana Territory
Louisiana Purchase
The Louisiana Purchase was the acquisition by the United States of America of of France's claim to the territory of Louisiana in 1803. The U.S...

. But note also that he made no exception for war, but rather saw the requirement of maintaining a balanced budget as a salutary deterrent.)

The issue of the federal debt was next addressed by the Constitution within Section 4 of the Fourteenth Amendment (proposed on June 13, 1866 and ratified on July 9, 1868):
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.


On May 4, 1936, Representative
Congressperson
A Member of Congress is a term used for a politician who has become qualified, appointed or elected, and inducted into some official body , typically to represent a particular constituency in a legislature...

 Harold Knutson
Harold Knutson
Harold Knutson was born in Skien, in Telemark county, Norway. At the age of 6 he and his family moved to the United States initially settling in Chicago, Illinois, but later moving to Sherburne County, Minnesota. He became the editor for the St. Cloud Daily Journal-Press and later president of the...

 (R
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

-Minnesota
Minnesota
Minnesota is a U.S. state located in the Midwestern United States. The twelfth largest state of the U.S., it is the twenty-first most populous, with 5.3 million residents. Minnesota was carved out of the eastern half of the Minnesota Territory and admitted to the Union as the thirty-second state...

) introduced House Joint Resolution 579, resolution in support of a Constitutional Amendment that would have placed a per capita ceiling on the federal debt in peacetime.

Article V of the Constitution specifies that if the legislatures of two-thirds of the states petition Congress for a constitutional amendment, then Congress must call a convention for proposing amendments. Between April 29, 1975 and January 29, 1980, 34 petitions from 30 different state legislatures were submitted to Congress on the subject of a Balanced Budget Amendment. The participating states were Alabama, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maryland, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming. Since 1980, two additional state legislatures have petitioned Congress for a convention for a Balanced Budget Amendment, bringing the total number of participating states to 32. If two additional state legislatures were to petition, then the required two-thirds majority of states would be reached (34 out of 50 states) and some contend that Congress would be required to call a convention to propose a Balanced Budget Amendment. In December 2008, the Ohio legislature considered making Ohio the 33rd state to petition for a convention on the subject, but decided against it.

Deficit Spending

Unlike the constitutions of most U.S. state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

s, the United States Constitution does not actually require the United States Congress to pass a balanced budget, one in which the projected income to the government through tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es, fees, fines, and other revenues equals the amount proposed to be spent. This has led to deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....

 and the creation of a national debt
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...

. Except for a short period during the presidency
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....

 of Andrew Jackson
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...

  since its inception the United States federal government has always been in debt.
End
of
Fiscal
Year
Gross
Debt in
$Billions
undeflated
Treas.
Gross
Debt in
$Billions
undeflated
OMB
as %
of GDP
Low-High
Debt
Held By
Public
($Billions)
as %
of GDP
(Treas/MW, OMB
or OMB/MW)
GDP
$Billions
OMB/BEA
est.=MW.com
1910 2.653 8.0 2.653 8.0 est. 32.8
1920 25.95 29.2 25.95 29.2 est. 88.6
1927 18.51 19.2 18.51 19.2 est. 96.5
1930 16.19 16.6 16.19 16.6 est. 97.4
1940 42.97 50.70 44.4-52.4 42.97 42.1 96.8/
1950 257.3 256.9 91.2-94.2 219.0 80.2 273.1/281.7
1960 286.3 290.5 54.6-56.0 236.8 45.6 518.9/523.9
1970 370.9 380.9 36.2-37.6 283.2 28.0 1,013/1,026
1980 907.7 909.0 33.4 711.9 26.1 2,724
1990 3,233 3,206 56.0-56.4 2,412 42.1 5,735
2000 5,674 5,629 57.4-57.8 3,410 34.7 9,821
2001 5,807 5,770 56.4-56.8 3,320 32.5 10,225
2002 6,228 6,198 58.8-59.0 3,540 33.6 10,544
2003 6,783 6,760 61.6-61.8 3,913 35.6 10,980
2004 7,379 7,355 63.0-63.2 4,296 36.8 11,686
2005 7,933 7,905 63.6-63.8 4,592 36.9 12,446
2006 8,507 8,451 63.8-64.2 4,829 36.5 13,255
2007 9,008 8,951 64.4-64.8 5,035 36.2 13,896
2008 10,025 9,986 69.2-69.6 5,803 40.2 14,439/14,394
2009 11,910 11,876 83.4-84.4 7,552 53.6 14,237/14,098
2010 13,562 93.4 9,023 62.2 /14,512

Fiscal years 1940-2009 GDP figures are derived from 2010 Office of Management and Budget figures which contained revisions of prior year figures due to significant changes from prior GDP measurements. Fiscal years 1950-2010 GDP measurements are derived from December 2010 Bureau of Economic Analysis figures which also tend to be subject to revision. The two measures in Fiscal Years 1980, 1990 and 2000-2007 diverge only slightly.

Nixon and Carter

Deficit spending resumed under Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

, who had become president by the time that the 1969 surplus was known. Nixon's advisors chose to fight inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 rather than to maintain a balanced budget. Nixon was famously quoted as saying, "We are all Keynesians now
We are all Keynesians now
"We are all Keynesians now" is a now-famous phrase coined by Milton Friedman and attributed to U.S. president Richard Nixon. It is popularly associated with the reluctant embrace in a time of financial crisis of Keynesian economics by individuals such as Nixon who had formerly favored monetarist...

," with regard to the budget deficit that his administration began to accumulate during years of mild recession. (He also imposed the first peacetime wage and price controls
Incomes policy
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...

, mandatory petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

 allotments, and many other features of a planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...

).

With the distractions of the Watergate scandal
Watergate scandal
The Watergate scandal was a political scandal during the 1970s in the United States resulting from the break-in of the Democratic National Committee headquarters at the Watergate office complex in Washington, D.C., and the Nixon administration's attempted cover-up of its involvement...

 and the budget deficit relatively small, however, most criticisms were sidelined until the administration of Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...

. During Carter's presidency, the term "stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

" enjoyed widespread use as the economy stagnated even among increased inflation rates. This economic situation had been previously unheard of in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 where increasing prices and wages had generally been seen during times of economic growth. Republicans began to make much mention of "Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

 deficits" and proposed the Balanced Budget Amendment as a cure. This was politically costless for them as long as they controlled neither house of Congress nor the Presidency, as they knew that it would not be enacted.

During this time period, many liberal Democrats began to call for a Balanced Budget Amendment, including Governor Jerry Brown
Jerry Brown
Edmund Gerald "Jerry" Brown, Jr. is an American politician. Brown served as the 34th Governor of California , and is currently serving as the 39th California Governor...

 of California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...

, who ran for president against Carter in 1980, and then-Congressman Paul Simon
Paul Simon (politician)
Paul Martin Simon was an American politician from Illinois. He served in the United States House of Representatives from 1975 to 1985 and United States Senate from 1985 to 1997. He was a member of the Democratic Party...

, who, upon his election to the U.S. Senate, would write the version of the amendment that came closest to passing.

National Taxpayers Union and a Constitutional Convention

The 1980 presidential election
United States presidential election, 1980
The United States presidential election of 1980 featured a contest between incumbent Democrat Jimmy Carter and his Republican opponent, Ronald Reagan, as well as Republican Congressman John B. Anderson, who ran as an independent...

 gave the presidency to Republican Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

 and control of the Senate to the Republicans for 3/4 of Reagan's presidency. Passage of the amendment started to seem more possible, though passage of a constitutional amendment requires a two-thirds majority in both houses of Congress. Deficit spending soared in the 1980s. A program agreed to by Administration and Congressional leaders which was supposed to entail two dollars of spending cuts for every dollar of tax increases was an abysmal failure, and deficits soared further. It became apparent that Congress had no intention of passing the Balanced Budget Amendment.

The amendment's backers, far from despairing, said that it was needed more than ever. They began a plan to make an "end run" around Congress, for the U.S. Constitution also allows two-thirds of state legislature
Legislature
A legislature is a kind of deliberative assembly with the power to pass, amend, and repeal laws. The law created by a legislature is called legislation or statutory law. In addition to enacting laws, legislatures usually have exclusive authority to raise or lower taxes and adopt the budget and...

s to petition for a new constitutional convention to be called for the purpose of writing proposed amendments to the Constitution, a procedure which has never happened at the federal level since the original constitutional convention of 1787. Much of this effort was initially organized by the National Taxpayers Union
National Taxpayers Union
National Taxpayers Union is a taxpayers advocacy organization and taxpayers union in the United States, founded in 1969 by James Dale Davidson. NTU advertises that it is the largest and oldest grassroots taxpayer organization in the nation, with 362,000 members nationwide. It is closely...

 and its President at the time, George Snyder
George Snyder
George Elmer Snyder was the Maryland State Senate majority leader from 1971-1974.He graduated from the University of Maryland and attended the University of Maryland School of Law. He is married to Karen Englehart Snyder and has six children and ten grandchildren...

, a former state senate majority leader. Many people were appalled at the concept; some constitutional scholars suggested that such a body could not be limited to its ostensible purpose and could largely rewrite the Constitution, perhaps removing or reducing the Bill of Rights, a fear that backers described as being totally groundless, since any proposed changes would still have to be approved by three quarters of the states, which would presumably doom any attempt to end basic constitutional freedoms.

Detractors also noted that there was no mechanism in place by which to select delegates to any such convention, meaning that the states might choose to select them in a way which tended to subvert democracy. Backers also produced their own constitutional scholars stating that limiting such a convention was perfectly constitutional, that it could be limited to whatever purpose the states had called it for, and that states would be free to select the delegates to represent them, as was the case in 1787.

By 1979, the effort to push the states to support an amendment had made serious progress with 29 of the 34 states required for a constitutional convention. An opposition effort was led by Massachusetts Lt. Governor Thomas P. O'Neill III
Thomas P. O'Neill III
Thomas Phillip O'Neill III leads a public relations and government affairs firm called O'Neill and Associates in Boston. He is the son of Tip O'Neill, who served as Speaker of the United States House of Representatives from 1977 to 1987.From 1975 to 1983, O'Neill served as lieutenant governor of...

 and a group of labor and liberal cause organizations including the AFL–CIO and Common Cause
Common Cause
Common Cause is a self-described nonpartisan, nonprofit lobby and advocacy organization. It was founded in 1970 by John W. Gardner, a Republican former cabinet secretary under Lyndon Johnson, as a "citizens' lobby" with a mission focused on making U.S. political institutions more open and...

.

Gramm-Rudman-Hollings Act

Perhaps motivated by the number of state legislatures calling for such a convention approaching the required two-thirds, and recognizing its inability to make sufficient cuts on its own initiative to balance the budget, Congress responded in 1985 with the Gramm-Rudman-Hollings Act, named for its Senate sponsors, which called for automatic cuts in discretionary spending when certain deficit-reduction targets were not met. This act soon became a convenient target for opponents of all stripes, who blamed it for government failing to meet perceived needs, for not abolishing the deficit, and anything else that might be wrong with government. When it began to affect popular programs, and was partially overturned in the courts, it was first amended to postpone the strength of its effects until later years, and then repealed in its entirety.

George H. W. Bush and Ross Perot

President George H. W. Bush, in part to help ensure Congressional support for the Gulf War
Gulf War
The Persian Gulf War , commonly referred to as simply the Gulf War, was a war waged by a U.N.-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait.The war is also known under other names, such as the First Gulf...

, agreed to turn back on a campaign promise of no tax increases
Read my lips: no new taxes
"Read my lips: no new taxes" is a now-famous phrase spoken by then presidential candidate George H. W. Bush at the 1988 Republican National Convention as he accepted the nomination on August 18. Written by speechwriter Peggy Noonan, the line was the most prominent sound bite from the speech...

, reportedly in part because he saw disaffection from his conservative base due to the looming deficit.

Deficit spending continued, but was no longer much of an issue until the presidential bid of Ross Perot
Ross Perot
Henry Ross Perot is a U.S. businessman best known for running for President of the United States in 1992 and 1996. Perot founded Electronic Data Systems in 1962, sold the company to General Motors in 1984, and founded Perot Systems in 1988...

 during the 1992 presidential election. Perot made the deficit, and his plans to eliminate it, the major issue of his campaign, along with his protectionist
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 plans to reduce and then eliminate the trade deficit. Many supporters of the Balanced Budget Amendment flocked to the Perot camp. Despite winning a substantial number of popular votes, Perot failed to carry a single state (zero electoral votes). He eventually faded from the political scene and when appearances were made, focused more on the trade deficit issue.

Clinton and the budget surplus

President Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...

 did not support a constitutional amendment, but in his 1992 campaign he called for balancing the budget through ordinary fiscal policy. He came into office facing a large deficit from the Bush administration. Clinton signed into law the Omnibus Budget Reconciliation Act of 1993
Omnibus Budget Reconciliation Act of 1993
The Omnibus Budget Reconciliation Act of 1993 was federal law that was enacted by the 103rd United States Congress and signed into law by President Bill Clinton. It has also been referred to, unofficially, as the Deficit Reduction Act of 1993...

, which attacked the deficit by raising taxes. Beginning with the 1998 budget year, during his second term, the country ran a yearly budget surplus through 2001.

In 1994, many Americans viewed reducing the deficit as one of the most important public policy objectives. Nevertheless, in that year's Congressional election, Republicans campaigned against Clinton's tax increase and took control of both the Senate and the House. One provision of their "Contract with America
Contract with America
The Contract with America was a document released by the United States Republican Party during the 1994 Congressional election campaign. Written by Larry Hunter, who was aided by Newt Gingrich, Robert Walker, Richard Armey, Bill Paxon, Tom DeLay, John Boehner and Jim Nussle, and in part using text...

" campaign document called for a balanced-budget amendment. In 1995, such an amendment passed the House of Representatives and came within one vote of passing the Senate.

Perot's less effective 1996 presidential bid was in part evidence of the declining significance of the deficit, and hence the Balanced Budget Amendment, as an issue.

In his final State of the Union
State Of The Union
"State Of The Union" is the debut single from British singer-songwriter David Ford. It had previously been featured as a demo on his official website, before appearing as a track on a CD entitled "Apology Demos EP," only on sale at live shows....

, Clinton said the United States should continue to balance its books and pay off the debt entirely.

Deficits under George W. Bush and Barack Obama

A recession, tax cuts and increases in military and other spending have eliminated late 1990s-era surpluses. Both the deficit and debt grew to the largest in U.S. history, although not as a percentage of GDP. In fiscal years starting September 30, 2002 and ending September 30, 2004 the deficit increased nearly 50%.

The Bush Administration and a Republican Congress cut the amount of the yearly deficit over the next several years. Bush called the outcome for Fiscal 2006 a "dramatic reduction" that redeemed his 2004 campaign pledge to halve the deficit earlier than his original 2009 target date.

However, during the administration of President George W. Bush, the gross debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008 , rising from 57.0% of GDP to 74.5% of GDP. The Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....

 estimated in March 2009 that under the Obama administration public debt would rise from 40.8% of GDP in 2008 to 70.1% in 2012. Gross debt did rise to 84.5% of GDP at the end of Fiscal Year 2009 and to 93.5% of GDP at the end of Fiscal Year 2010.

The federal budget deficit, which hit a record $1.4 trillion last year, will exceed that figure this year and again in 2011, the White House predicted July 24, 2010.
Recent additions to U.S. public debt
Fiscal year (begins
10/01 of prev. year)
Annual
deficit
% of GDP Total debt % of GDP
1994 $281.0 billion 4.0% $4.70 trillion 67.3%
1995 $281.5 billion 3.8% $4.95 trillion 67.8%
1996 $251.0 billion 3.2% $5.20 trillion 67.7%
1997 $188.5 billion 2.3% $5.40 trillion 65.9%
1998 $113.0 billion 1.3% $5.55 trillion 63.8%
1999 $130.0 billion 1.4% $5.65 trillion 61.4%
2000 $18.0 billion 0.2% $5.65 trillion 57.8%
2001 $133.5 billion 1.3% $5.80 trillion 56.8%
2002 $421.0 billion 4.0% $6.25 trillion 59.1%
2003 $555.0 billion 5.1% $6.80 trillion 61.8%
2004 $596.0 billion 5.1% $7.40 trillion 63.1%
2005 $553.5 billion 4.4% $7.95 trillion 63.7%
2006 $536.5 billion 4.1% $8.50 trillion 64.3%
2007 $500.5 billion 3.6% $9.00 trillion 64.8%
2008 $1,017 billion 7.1% $10.0 trillion 69.6%
2009 $1,885 billion 13.4% $11.9 trillion 84.5%
2010 $1,652 billion 11.4% $13.6 trillion 93.5%
2011 (1st Q) $463.5 billion $14.0 trillion ~96.5%


During the 2011 US debt ceiling crisis, some Republicans supported a bill that would avert the crisis by raising the debt ceiling, but with an increase that would not take effect until a balanced-budget amendment was approved by both houses of Congress and submitted to the states. In addition to balancing the budget, it would also would impose a constitutional limit on federal spending as a percentage of gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

 and would set a supermajority
Supermajority
A supermajority or a qualified majority is a requirement for a proposal to gain a specified level or type of support which exceeds a simple majority . In some jurisdictions, for example, parliamentary procedure requires that any action that may alter the rights of the minority has a supermajority...

 requirement on tax increases.

On November 18, 2011 the House of Representatives voted down a balanced-budget amendment that would not have imposed a supermajority requirement on tax increases. House Rules Committee chair David Dreier
David Dreier
David Timothy Dreier is the U.S. Representative for , serving in Congress since 1981. He is a member of the Republican Party.-Early life, education, and business career:...

 (R-CA), who had voted for the amendment in 1995, announced that he had changed his mind about the need to amend the Constitution, in light of the success in balancing the budget in the late 1990s.

Support

Historically as a political issue, the deficit, national debt, and the proposed Balanced Budget Amendment have ebbed and flowed in levels of discussion and the proposed amendment has varied greatly in level of support. The modern discussion of the issue seems to have been started by the Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

 in response to the "guns and butter" policies of President Lyndon B. Johnson
Lyndon B. Johnson
Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...

, who simultaneously announced his desires for "Great Society
Great Society
The Great Society was a set of domestic programs in the United States promoted by President Lyndon B. Johnson and fellow Democrats in Congress in the 1960s. Two main goals of the Great Society social reforms were the elimination of poverty and racial injustice...

" social programs while prosecuting the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...

. Johnson also pushed for Congressional enactment of a surtax
Surtax
A surtax may be a tax levied upon a tax, or a tax levied upon income.-United Kingdom:In 1929, Supertax was renamed Sur-tax...

 as well as other tax increases which allowed him to leave office in 1969 with a balanced budget (plus a small surplus) on the books. This was the last time the United States would see a balanced budget until 1999.

Criticism

Many Keynesian economics and Neo Keynesian economics economists believe that, while a large federal deficit has an adverse effect on the economy, deficit spending has significant benefits in times of recession. In 2003, approximately 90% of the members of the American Economic Association
American Economic Association
The American Economic Association, or AEA, is a learned society in the field of economics, headquartered in Nashville, Tennessee. It publishes one of the most prestigious academic journals in economics: the American Economic Review...

 agreed with the statement, "If the federal budget is to be balanced, it should be done over the course of the business cycle, rather than yearly." A reason cited by several leading economists is that a "balanced budget amendment would mandate perverse actions in the face of recessions" by requiring spending cuts that would aggravate the recession. As one example, the private forecasting firm Macroeconomic Advisers LLC addressed the effect of balancing the federal budget for 2012, in the wake of the late-2000s recession: "Then, instead of forecasting real GDP growth of 2% or so for FY 2012, we’d mark that projection down to perhaps -12% and raise our forecast of the unemployment rate from 9% to 16%, or roughly 11 million fewer jobs." Furthermore, the resulting loss of tax revenue and increase in mandatory spending would require additional cuts in discretionary spending that would cause a loss of four million more jobs.

The amendment has been called "political posturing" because its proponents use it to position themselves as supporters of a balanced budget but without specifying any unpopular tax increases or spending cuts that they would support to reach that goal. For example, Robert Bixby
Robert Bixby
Robert Bixby is the Executive Director of the Concord Coalition, a nonpartisan grassroots organization that educates the public about fiscal responsibility. The Coalition was founded in 1992, and Bixby was named the Executive Director in 1999...

 of the anti-deficit Concord Coalition
Concord Coalition
The Concord Coalition is a political advocacy group in the United States, formed in 1992. A bipartisan organization, it was founded by former U.S. Senator Warren Rudman, former Secretary of Commerce Peter George Peterson, and the late U.S. Senator Paul Tsongas. The Concord Coalition's advocacy...

 called the amendment "an avoidance device."

It's been argued that such amendment would likely be unenforceable. Among other reasons, the standard budgetary process in the United States operates with projected figures. There is no way of knowing ahead of time whether the budget would end up unbalanced in any fiscal year, before that fiscal year is over. While the Congress may be mandated by the amendment only to pass balanced budgets, this could be easily circumvented by inflating revenue projections, or routing spending through off-budget channels. Balanced Budget Amendment proposals often contain an exemption for emergencies such as being in the state of war. It could be envisioned that the Congress would simply declare the country in a perpetual state of war, year after year, just to avoid the necessity of politically costly spending cuts or tax increases.

See also

  • Keynesian economics
    Keynesian economics
    Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

  • Keynesian economics in United States 2008
  • Deficit spending
    Deficit spending
    Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....

  • George Snyder
    George Snyder
    George Elmer Snyder was the Maryland State Senate majority leader from 1971-1974.He graduated from the University of Maryland and attended the University of Maryland School of Law. He is married to Karen Englehart Snyder and has six children and ten grandchildren...

  • Golden Rule (fiscal policy)
    Golden Rule (fiscal policy)
    The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government...


External links

, a proposed Balanced Budget Amendment approved by the U.S. Senate on August 4, 1982, a proposed Balanced Budget Amendment approved by the U.S. House of Representatives on January 25, 1995
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