Federal Government · Personal Finance

Why A Balanced Budget May Not Work

Ever since at least the 1990s, conservative Americans have been fixated on the importance of a constitutional amendment to ensure federal revenues do not fall short of expenditures. The idea picked up a lot of steam during the rise of the Tea Party movement in 2010, and now some Democrats are even advocating for such a reform.

At its base, the notion is attractive. By placing legal limits on spending, we might prevent the runaway inflation and financial ruin likely to be foisted upon ours or future generations. In his book The Liberty Amendments, Mark Levin expanded the concept by suggesting a cap on the size of government spending at 17.5 percent of GDP, and a mandatory 5 percent cut in overall spending if Congress fails to adopt a budget.

This all sounds great, but several problems remain. First off, most plans include exceptions for emergencies and times of war. The obvious fail point would be politicians declaring a health crisis like coronavirus to be indefinite, or using the so-called “War On Terror” as justification to spend without limit.

An equally significant issue is the risk of “off-the-books budgeting,” which has been practiced for years by government officials. In Nazi Germany, it was employed to get around the Versailles Treaty restrictions concerning maximum outlays on military buildup projects. During the years leading up to the 2008 financial crisis, the Greek government acted with related malevolence, only in their case it was to complete corrupt real estate deals and hide inflated salaries that violated EU standards.

Believe it or not, America is hardly free of these unethical strategies. The Central Intelligence Agency has been allowed to evade federal budgetary restrictions for decades, and a recent audit of the DOD revealed the agency is incapable of accounting for billions – if not trillions—of taxpayer money spent on a variety of projects.

The upshot is that while a balanced budget amendment might improve the nation’s solvency on paper, it fails to prevent the eternal scheming of the political class to bankrupt our treasury in pursuit of their own interests.