Washington: Credit Limit?

The balanced-budget amendment gets another chance.

In 1993, elected officials in Washington had two solid opportunities to make meaningful cuts in the growth of the federal budget. Both times, President Clinton and Democratic congressional leaders sided with traditional spending interests to sidetrack attempts at fiscal restraint.

In May they rejected the Republican budget plan orchestrated by Ohio Rep. John Kasich that would have cut projected deficits by nearly $500 billion without any new taxes. (See "The Energizer," Aug./Sept.) Then in November, the House of Representatives narrowly defeated a $90-billion package of spending cuts proposed by Kasich and Rep. Tim Penny (D-Minn.) that would have cut the growth of the federal budget by 1 percent over five years. (See "Deficit Chickens," Feb.)

This February, deficit cutters will get another chance to tackle runaway government borrowing. For the second time in three years, Sen. Paul Simon (D-Ill.) and Rep. Charles Stenholm (D-Tex.) will offer an amendment to the U.S. Constitution that mandates a balanced budget. And although Clinton and several key Democrats will once again side with the big spenders, this time they may lose.

In the summer of 1992, the House fell only nine votes short of the two-thirds majority needed to pass a balanced-budget amendment. This February, Simon will offer the same amendment as before: Each fiscal year, the president must present a balanced budget to Congress. Federal spending in the current fiscal year can exceed tax revenues only if 60 percent of the members of each house of Congress vote for an unbalanced budget. And taxes can be increased only by a vote of more than 50 percent of the entire membership of both houses. (The House will vote on the amendment in March. In late December, Simon-Stenholm had 50 co-sponsors in the Senate, 260 in the House.)

Prospects for deficit hawks have improved since the 1992 vote. First, Clinton's deficit-reduction efforts look phony. If last August's budget deal works as well as expected, annual deficits will remain around $200 billion until fiscal year 1998. Then they will start skyrocketing again.

Since August, Clinton has used disingenuous arguments to oppose further spending cuts. In a November 5 letter to Senate Majority Leader George Mitchell (D-Maine), Clinton said the Simon-Stenholm amendment was "bad economics" because "the deficit increases automatically whenever the economy weakens."

That's true of the federal budget because it's easy for the U.S. government to borrow money. Stephen Moore, director of fiscal-policy studies at the Cato Institute, points out that state budgets, which must be balanced, tend to expand during good times and contract during recessions. During the 1980-83 and 1990-92 recessions, Moore reports, real state general-fund expenditures fell by about 1 percent, while real federal expenditures grew by about 10 percent. A balanced-budget amendment could contain deficits no matter how the rest of the economy behaved.

Clinton's letter then called Simon-Stenholm a "budget gimmick" that "would not reduce the deficit by a single penny." It could, however, "imperil the economic stability of the Nation and our fledgling recovery." The president thus argues that a balanced-budget amendment would simultaneously do too little and do too much. And at a December "entitlement summit" in Pennsylvania, Clinton took doublespeak to new heights when he argued that the only way to rein in federal entitlement spending was to create a brand new entitlement—a right to government-funded health care.

In 1992, conservative Republicans derailed the Simon-Stenholm amendment when they backed their own plan to balance the budget and restrain taxes. That plan was introduced by then-Sen. Bob Kasten (R-Wis.), whose amendment would have required a 60-percent majority vote to pass any tax hike that raised revenue by more than the annual increase in gross domestic product. (See "Balancing Act," July 1992.)

This time, a conservative alternative to Simon-Stenholm may emerge. But it's unlikely that conservative lawmakers or advocacy groups will try to pass it at the expense of the Simon-Stenholm amendment. Indeed, the National Taxpayers Union, the Christian Coalition, the American Legislative Exchange Council, and the Free Congress Foundation will all encourage their members to write or phone Congress in support of Simon-Stenholm. Americans for Tax Reform President Grover Norquist plans to conduct weekly teleconferences with local anti-tax activists, encouraging them to write letters and call talk shows. While recognizing that a mandate to balance the budget might lead to new taxes, these organizations also understand that a balanced-budget amendment would almost certainly derail new spending programs.

"We could have fun, point fingers, and prove we're good conservatives" by opposing Simon-Stenholm, says John Berthoud, ALEC's legislative director for tax and fiscal policy. But "we can count votes in Congress." An alternative amendment that precludes tax increases, he says, would never pass.

Competing amendments also tend to weaken the support for any reforms, says NTU Executive Vice President David Keating. As a result, he says, "Voters ignore them. The people pushing each [alternative] will say, 'My balanced-budget amendment is better than your balanced-budget amendment.'" When the amendments finally reach a vote, none of them passes.

Clinton opposes the Simon-Stenholm amendment. But it's not clear how vociferously he will try to defeat it. His economic advisers—budget director Leon Panetta and his deputy, Alice Rivlin, and Treasury Secretary Lloyd Bentsen—argue in Keynesian terms that deficits should be used to stimulate the economy and to "create" jobs. They also say that any budget cutting beyond the deal enacted in August would hurt the economy and could cause a recession, a contention Federal Reserve Chairman Alan Greenspan has called "ludicrous."

Then there's health-care reform. The president's advisers have suggested that a balanced-budget amendment would make ClintonCare difficult, if not impossible, to implement. "That's a troubling argument," says Stenholm aide Ed Lorenzen. After all, ClintonCare is supposed to cut the deficit, not add to it. "People are already suspicious that the president's plan [won't] reduce the deficit," says Lorenzen. An all-out campaign by the White House to defeat Simon-Stenholm would make it clear that ClintonCare is nothing more than a huge new spending program.

Several powerful Democrats in the Senate—Majority Leader Mitchell, Appropriations Committee Chairman Robert Byrd (W.Va.), and Judiciary Committee Chairman Joseph Biden (Del.)—also oppose the amendment. The NTU's Keating and ALEC's Berthoud agree that, if the White House and key Democrats actively campaign to defeat the amendment, it has little chance of getting 67 votes in the Senate. Keating says the amount of energy Clinton expended to defeat Penny-Kasich "doesn't give us a lot of hope. If [Clinton] pushes hard on this amendment, I don't see how it can pass."

Nonetheless, Clinton's political advisers—including David Gergen, who supported Simon-Stenholm as a U.S. News & World Report editor in 1992—recognize that deficit spending is becoming a loser at the ballot box. The Concord Coalition and Ross Perot's United We Stand America can mobilize thousands of people to work against candidates those organizations consider fiscally irresponsible.

Democrats occupy 21 of the 34 Senate seats that are up for election this fall. Four incumbent Democrats will not seek re-election, and seven other incumbents won their last race with 57 percent of the vote or less. If the budget deficit becomes a major issue in the 1994 election, the Simon-Stenholm vote could determine which party controls the Senate for the next two years. And in the House, many of the 66 freshman Democrats ran in 1992 as deficit hawks. Since this Congress has already passed a huge tax increase, incumbents may feel a great deal of pressure to support a balanced-budget amendment as a restraint on future spending.

As this story goes to press, no one can confidently predict how the Senate will vote on Simon-Stenholm. A New York Times head count in early November found that 60 senators favored the amendment, 20 opposed it, and 20 were undecided. Amendment backers claim that the opposition is weakening. For instance, Senate Budget Committee Chairman Jim Sasser (Tenn.), a former opponent, now says he may vote for the amendment. Simon spokesman David Carle thinks the Democratic leadership will not take a position on the amendment.

If Clinton stays on the sidelines, the amendment could pass. Supporters doubt the president can afford to exhaust his political capital to defeat a balanced-budget amendment with his health-care reforms also on the line. Eventually, Clinton will have to support real fiscal reforms. Otherwise, says ATR's Norquist, a successful campaign to defeat Simon-Stenholm would "hail the death of Bill Clinton as a New Democrat."

Rick Henderson is Washington editor of REASON.