Thursday, June 30, 2011

Romney Is Wrong To Take The Balanced Budget Amendment Pledge

I had a post almost ready yesterday on the debt ceiling, when I got the news that Mitt Romney supports the Cut, Cap, and Balance Amendment Pledge. I would love to know what when on with Romney's meeting with Senator Lee yesterday in Washington. Romney's decision, to the outside world, just doesn't make sense. My only guess is that Romney thinks that DeMint's endorsement is just too important and that he is willing to go on record for not supporting the raising of the debt ceiling.

Let's look at this in detail.

The Pledge demands that unless there are substantial cuts to the deficit and a Balanced Budget Amendment is passed, then conservatives should refuse to raise the debt ceiling. Sounds great, right?

First, let's look at what happens if the debt ceiling is not raised. Luckily, the Bipartisan Policy Center (as reported by The Hill) just released a giant report that tells us.

1. "The Department of Treasury would need to implement an immediate 44% cut in federal spending."

2. "The daily inflows of revenue and outflows of obligations are 'lumpy' and it would be difficult for Treasury to prioritize 80 million different payments. For the month of August, the deficit from Aug. 3 to Aug. 31 would be $134 billion."

3. "In one scenario, if the administration tries to protect Social Security, Medicare, Medicaid, defense contracts and unemployment insurance, then no military pay, tax refunds, federal civilian pay or welfare payments could be made that month."

4. "Protecting the social safety net, including Pell Grants and welfare, along with the big entitlement programs, still means that no federal workers would be paid in August and no tax refunds would be issued.

In both scenarios, the entire budgets of the Justice, Labor, Energy, Interior, Health and Human Services and Commerce departments are zeroed out, as are the budgets of NASA, Environmental Protection Agency, Federal Transit Administration and Federal Highway Administration."

It will also cause another recession:
Moody’s chief economist, and former McCain economic adviser Mark Zandi is forecasting GDP growth of 4 percent by the end of the year and into next. But in response to a question from TPM, he told reporters at a breakfast meeting hosted by the Christian Science Monitor that his forecast would be “blown out of the water,” if Congress fails to “reasonably gracefully” raise the national borrowing limit.
If Congress fails to raise the national debt limit by early August, the Obama Treasury Department will have to choose between defaulting on obligations to the country’s creditors — triggering higher interest rates and perhaps damaging the country’s credit rating for months and years to come — or freezing outlays to contractors, entitlement beneficiaries and others who are also expecting prompt payment as well. In either case, the macroeconomic impact will be staggering, according to Zandi.
“I think we go into recession and my forecast would be blown out of the water,” he said. “I think if we get to August 2nd and there is no debt ceiling [increase] and there has to be significant spending cuts, I think even if Congress and the administration reverse themselves days later, I think the damage will have been serious and we’ll probably be thrown into a recession.”
Additionally, Zandi noted, “The cost to taxpayers would be enormous, because we would nail tax revenue and spending would increase because of the automatic stabilizers in the budget. So it would be just the wrong thing for the economy and the wrong thing for trying to address our long-term fiscal issues.”
This is the path that DeMint (and now Romney) would gladly lead us down. Of course, the Pledge offers a way out of this abyss. A balanced budget amendment. Let's assume for one moment that such an amendment would pass both Houses of Congress and garner 3/4ths state approval. It won't, which is why Romney's pledge is so scary. But let's assume that it does. What are the implications of such an amendment?

Well, they are too many to even summarize here, so let me give you a few links and quotes. Each one of these links has a detailed discussion about the balanced budget amendment.

The Center on Budget and Policy Priorties
"The economic problems are the most serious, and they would pertain to any version of a constitutional balanced budget amendment. By requiring a balanced budget every year, no matter the state of the economy, such an amendment would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses. That’s because the amendment would force policymakers to cut spending, raise taxes, or both just when the economy is weak or already in recession — the exact opposite of what good economic policy would advise."
Norman Orstein, American Enterprise Institute

"I am not against balanced budgets. But a constitutional requirement to balance the federal budget is a virtual guarantee that we will have economic catastrophes that will make the Great Depression look like a picnic. Here is the problem, which should be evident to anybody who has taken Econ 101. When the economy sags, the initial remedy is what we call countercyclical policy--counter the downturn with a jump-start via economic stimulus. Every major country acted in 2008 to do just that, and by consensus avoided a global disaster far more serious than we got.

In the U.S., unlike many other major economies, the need for stimulus at the federal level is even greater because of the deep fiscal drag caused in a downturn by the requirement in nearly all of our states to balance their budgets--which means, in times of adversity, raising taxes and/or cutting spending. This is the equivalent of the medieval practice of bleeding to cure any ailment, including those where the patient was severely anemic. The fiscal drag from the states amounted to roughly $800 billion in 2009. Thus, a stimulus from Washington of $800 billion barely countered the states’ fiscal drag--it merely replaced the blood lost by the state-level bleeding.

Now imagine that instead of a stimulus, which would be blocked by a BBA, we were required to bleed longer and deeper. That is what a BBA would do."
Bruce Bartlett, former Reagan adviser
It’s doubtful that BBA supporters really understand the composition of federal spending. In fiscal year 2009, we would have had to abolish every discretionary spending program, including national defense, to balance the budget and that still wouldn’t have been enough without higher revenues. We would have had to cut more than $300 billion out of Medicare and Social Security as well.
A BBA would force the federal government to make economic recessions worse. Since federal revenues fall and spending rises automatically in economic downturns, it would force spending cuts and tax increases at precisely the point when the economy is reeling, potentially turning a modest downturn into a depression.

So in summary, the Tea Party wing of the Republican Party is willing to risk another recession and possible default of American loans just so that they can implement a policy gimmick that would lead to more economic trouble in the future. And this gimmick is designed strictly and solely to make it look like the proponents of said gimmick are fighting the Democrats on federal spending.

Now, Romney has signed on.

11 comments:

Anonymous said...

Pablo, thanks for the info. I was hoping Romney would not sign on, mostly because I don't think he should sign any pledge. It leaves to door open for too many special interest groups and people like DeMint to have an inordinate amount of control where they just don't belong.

-Martha

Anonymous said...

If the press makes a big deal out of this, and they should, Romney is done, finished, over. Maybe not in the primary, but he would lose badly to Obama.

Anonymous said...

Sorry, that last was me.

DanL

Massachusetts Conservative said...

What the hell are you guys talking about?

You think Mitt should support raising the debt ceiling without asking for anything in return?

Can someone explain this to me?

You want Mitt to not demand a Balanced Budget Amendment?

You guys are gladly not his advisors. He has made the correct decision for the country, as well as the correct political decision.

Mitt supports raising the debt ceiling, as long as the politicians are responsible about real and serious spending reforms.

Pablo said...

Massachusetts Conservative,

I went into considerable length detailing why this pledge is not responsible? How am I wrong?

Anonymous said...

A balanced budget amendment is NEVER going to happen. It may be a nice idea, but not going to happen. They would never, ever get enough states to sign on.

This gimmick is just as stupid as the Fair Tax myth. Huckabee was irresponsible pushing that crap and Romney is more than irresponsible pushing this crap.

DanL

Massachusetts Conservative said...

Pablo

You obviously do not understand the Balanced Budget Amendment. Have you read it?

It gives the Congress the ability to borrow money as long as a 2/3 majority is reached.

The Amendment does not require balancing the budget with no exceptions. A 2/3 majority will allow increasing the debt limit, exceeding the 18% GDP cap, and whatever else.

But you are mistaken on these points:

(1) You think stimuli work? They are proven not to work. You quoted someone who said we need another stimulus. That is nonsense. We need TAX CUTS. Corporate tax cuts, we need to abolish the repatriation tax, we need to abolish the death tax, and we need to cut income taxes.

(2) Why do you think a balanced budget is bad for the economy? We had a balanced budget in the late 1990s, during the tech boom! And America was in GREAT shape until 2001 or so. And that was only because of a bubble that popped, followed by 9/11.

The fact is, we had a balanced budget before, and we were in GREAT shape. Why can't we have one again?

If we continue to rack up huge deficits, we will lose our AAA credit rating and our entire economy would be a total disaster. We would make Greece look like Luxembourg.

ALSO, the Balanced Budget Amendment's requirements do not take place for FIVE YEARS. Read the Amendment.

If we substantially cut taxes and pass the Balanced Budget Amendment, we will grow our economy for the next 5 years without having to drastically cut spending, and by the time the 5 year window is over, our economy will be in such good shape, cutting spending will be a breeze.

And do not forget that Unemployment insurance payments, Medicaid payments, and food stamp expenditures will be substantially lower by that time. And people will be paying taxes when they finally have jobs.

Feel free to ask me questions.

Massachusetts Conservative said...

So basically, the sticking point I want you to get from my previous comment is that...

The Amendment allows a 5-year window before the balance is required.

In those 5 years, we can pass tax reform and reform our trade agreements to promote American industry. We can also aggressively push for natural gas.

Now, once the Amendment is ratified, there would be total certainty around the world that we will be able to honor our obligations, and lending to Americans is not overly risky.

That 5-year window would allow us to grow the economy substantially by repealing Obamacare, reforming financial system regulations, passing trade and tax reform, and getting people back to work.

Then, the cuts would not be so painful for the country.

Just read the Amendment. It's not as ridgid or harsh as you think.

Anonymous said...

The reason why romney and most others signed this pledge was because jim demint said he would not endorse any candidate that doesnt sign it. In my opinion no presidential candidate should ever sign any pledge from any party or group.Instead they should have done what romney did in putting forth his own pledge. Im not a jon huntsman guy but i do support his stance saying he will not sign any pledges. Unfortunately romney and the others are playing along for a chance at a jim demint endorsement.

Anonymous said...

that last one was me...Mizzou

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