Senior Vice President for State Fiscal Policy
Proponents of a balanced budget requirement for the U.S. Constitution sometimes argue that since nearly every state has to balance its budget, the federal government should do the same. This argument has two fatal flaws:
A balanced budget requirement would cripple the automatic stabilizers and make meaningful stimulus measures impossible by forcing federal policymakers to cut spending and/or raise taxes when the economy has weakened, just as state policymakers already must do. That would set off a vicious spiral of bad economic and fiscal policy: a weak economy would lead to higher deficits, which would force more spending cuts or tax increases, which would weaken the economy further. As Congressional Budget Office head Douglas Elmendorf warned Congress, a balanced budget amendment “risks making the economy less stable, risks exacerbating the swings in business cycles.”
For some of the other reasons why a balanced budget amendment is a bad idea, see our recent report.