Why Democrats Hate a Balanced Budget Amendment

My latest piece, “Why Democrats Hate a Balanced Budget Amendment” was just published at BigGovernment.com.  You can read my piece about the struggle for a Balanced Budget Amendment at their site or you can read it in its entirety below:

WHY DEMOCRATS HATE A BALANCED BUDGET AMENDMENT

By Peter Frank

http://www.breitbart.com/Big-Government/2011/07/26/Why-Democrats-Hate-a-Balanced-Budget-Amendment

With Sen. Harry Reid (D.-Nv.) leading the charge that killed the Cut, Cap and Balance Act(it apparently was the “worst piece of legislation” he’d ever seen), and a new deal to break the impasse over raising the debt ceiling looming, it’s appropriate to ask why Democrats hate the idea of a balanced budget amendment.

Americans are forced each day to live with a balanced budget – families can only spend more than their income for a short time without ultimately going into default. Firms in a private market must live with a balanced budget or they’ll quickly exit industry.

So, why do Democrats hate the idea of a balanced budget amendment? Such an amendment would force Congress to spend within its means. What’s the problem with forcing expenses and revenue to equal each other? It seems to make sense in the absence of some mechanism (like profits and losses in the private market) to incentivize a prudent use of resources, that politicians should be bound to spend within their means.

It’s not that Democrats don’t believe in fiscal discretion or think there are no consequences to amassing a massive debt for future generations to pay. President Obama has repeatedly stated that deficit reduction is a priority, and he favors a “big deal” to both raise the debt limit and reduce spending by billions. Democrats in Congress have supported these goals of working hard to reduce the deficit over the next decade. Listening to lawmakers speak about their desire to cut spending, one would expect wide-spread bipartisan support for a balanced budget amendment.

Not so fast.

The bottom line for Democrats is that a constitutional law forcing spending and revenue to equate signifies a massive loss of political power. Democrats in Congress claim that a balanced budget will devastate the economy because they will not have the ability to spend discretionary dollars whenever they see fit (i.e. when they deem it necessary for the economy). House minority whip Steny Hoyer (D.-Md.) said they he wouldn’t support it because it would “make it virtually impossible to raise revenue” (i.e. taxes). I’ll let Michelle Malkin handle the fallacies in Hoyer’s reasoning.

Democrats refuse, no matter how fiscally wise, to give up the substantial power that comes with spending taxpayer (and borrowed) dollars. The President and Congressional Democrats want to solve the deficit problem by cutting future program spending while raising the debt ceiling in order to save America from default. Imagine trying to encourage a teenager to pay off his first credit card by increasing the loan limit and telling him that in the future he’ll have to buy fewer clothes. It just doesn’t make sense.

The problem with the Democrats approach is that it fails to force future lawmakers to live within a budget and to provide any long-term incentive to align spending with revenue. The answer is a balanced budget amendment, yet Democrats are unwilling to cede their unmitigated spending power. They’d rather raise the debt ceiling to keep their power safe. The recent financial crisis and the subsequent economic downturn shows exactly how billions of dollars are spent based on congressional “insight,” with little effect.

The problem of knowing where to spend, when to spend, and how much to spend is a problem that is appears unsolvable inside the halls of the U.S. Capitol.

We can expect the many newly elected Republicans in the House to continue trying to limit the power of government (and their power to spend). Limiting power is a tough sell in Washington today, especially when Democrats are looking to swing the election victory pendulum back in their corner.

Why You Should Care About the National Debt Ceiling

Everyone needs to be aware that the debt ceiling is currently set at an incredible $14.294 trillion.  I tackle this debt ceiling and the federal government’s impending shut-down (circle April 8th on your calendar) in my latest BigGovernment.com piece.  Check it out here: http://www.breitbart.com/Big-Government/2011/04/01/Why-You-Should-Care-About-The-National-Debt-Ceiling or in its entirety below.

WHY YOU SHOULD CARE ABOUT THE NATIONAL DEBT CEILING

by PETER FRANK 1 Apr 2011 

With the Federal government scheduled to shut down on April 8, Congress is not only debating where to spend trillions of dollars in the next fiscal year, but also whether to raise the roof, i.e. the debt ceiling. The debt ceiling simply represents a cap on the total debt the U.S. government can hold, and it is currently set at a whopping $14.294 trillion. Though the resolution for this limit was signed a mere year ago, we are quickly approaching the limit and should reach it sometime in the first week of AprilKeep in perspective that it would take more than 31,000 years of earning $1 a day to make a measly $1 trillion of the total debt. The government has added to the total debt every year since 1960 (except for two years). Worse yet, it has added over $5 trillion in the past three and a half years alone. Wouldn’t common sense indicate that there’s little room to borrow more? Apparently not.

The reality is that many lawmakers want to “stabilize the debt” by increasing the debt ceiling. Of course, you can’t stabilize trillions of dollars. So essentially, the government ends up selling more bonds just to pay interest on the national debt and pay for new spending.What’s a few more hundred billion when you already owe several trillion?

Often, to explain how we must increase the debt ceiling, government plays on one major fear – the fear of U.S. default. Those in support of raising the debt ceiling argue that if it’s not increased the government will not be able to meet obligations. They essentially say the country will go bankrupt. To prevent this very issue, the debt ceiling has been raised 74 times since March 1963. The problem with this rationale is that it’s like urging a boat to take on more water to keep it from sinking. Imagine meeting with your financial planner and hearing him say, “In these tough financial times I recommend you add to your debt in order to stay solvent.” I hope you would quickly find a new financial planner.

In the realm of “real world” spending, consumers cannot increase their total debt with a simple declaration. As consumers approach a high level of debt, their ability to take on more debt is checked by the price (interest rates) and the risk premium they represent to a possible lender. Obviously, no mechanism of natural market discipline exists for government. So instead, the debt ceiling becomes an artificial barrier which is put in place to demonstrate the illusion of fiscal responsibility. Opponents of raising the debt ceiling agree.

When the debt ceiling is reached, it will be the first time we’ve done so without raising the limit. Though there will be implications, don’t expect a government shutdown. For one, the treasury will be unable to borrow more money to meet federal government obligations. Scary? Absolutely, but it might not be a bad thing considering no legislation to date has worked to curb out of control spending. Congress would likely have to pass legislation mandating that the first checks the government writes each month pay for debt service, which would undoubtedly leave fewer dollars available for all other spending. (In a dream world this repercussion would lead government to tighten their belts and make cost effective saving measures). What is certain is that a failure to raise the debt ceiling would not result in government default. Congress has more than enough at its disposal to pay U.S. Treasury bond obligations. The fear of default is misguided.

In a March 30 Wall Street Journal column, U.S. Senator Marco Rubio wrote that he (and others) will only vote to raise the debt ceiling if it’s the last raise ever made and if its accompanied by several measures to tighten and reign in spending. With such emphatic promises from political heavyweights like Rubio, you can bet on a hot debate in coming days.