Advantages & Disadvantages of the Balanced Budget Amendment

  Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance      Updated November 08, 2018
  Written by: Tom Gresham
Advantages & Disadvantages of the Balanced Budget Amendment

A federal balanced budget amendment occasionally emerges as a political hot-button issue. The amendment would require that the U.S. government not run a budget deficit, limiting expenses to the amount of revenue the government brings in. Passage of a balanced budget amendment requires overwhelming congressional and state support, needing the approval of three-fourths of the states and two-thirds majorities in both houses of Congress.

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  • While the federal balanced budget amendment helps control government spending and tame national debt, restrictive monetary policy could hinder the government's ability to respond to emergency situations quickly.

Exploring Your Debt Load

The chief advantage of a federal balanced budget amendment is that it reduces federal debt because it requires the government to operate without a deficit. Advocates argue that a balanced budget amendment would lead to a smaller federal government and less government waste, including a major reduction in pork-barrel spending – the practice of legislators pushing pet projects for their constituencies. An elimination of the deficit also would reduce the millions of dollars in interest that the government pays on its debt when it runs a deficit.

Taxes, Debt and Saving

Advocates of a balanced-budget amendment say the amendment would keep the federal government from borrowing beyond its means, which could ultimately force it to dramatically cut spending, raise taxes or both simply in order to service debt.

Critics say there's little evidence that such a debt disaster is actually on its way to the United States and warn against unnecessary austerity that could harm people and the economy at large.

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Understanding Crisis Response

A key concern frequently raised about a balanced budget amendment is the lack of flexibility it allows. Because the budget is required by law to be balanced, the federal government has fewer options for responding to economic developments as they arise. Although an amendment plan is expected to provide flexibility in the event of a war or natural disaster, proposals typically do not have the same room for maneuvering if there is a strong need to stimulate the economy in a downturn.

Social Programs, Tax Volatility and Borrowing

Critics of a balanced budget amendment argue that it would lead to the reduction and elimination of necessary services provided by the federal government, including social services and defense. Even Social Security could be forced to cut payments in particular years, according to a report by the Center on Budget and Policy Priorities. Even programs that tend to promote economic stability, such as the Federal Deposit Insurance Corporation's bank deposit insurance program, could struggle to pay for themselves during a recession, when tax revenue is weak.

That, in turn, could force the government to raise taxes precisely when the economy isn't doing well, rather than provide tax relief to help consumers and businesses get back on their feet.

About the Author

Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.

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