Computing the cost of a balanced budget amendment

In recent testimony before the House Judiciary Committee, Office of Management and Budget Director David Stockman said that he now favored the proposed balanced budget amendment. Administration supporters claim that the constitutional amendment would impose needed fiscal restraint on a spendthrift federal government. With President Reagan's own budget deficit now expected to top $100 billion, Mr. Stockman's statements are a little like saying: ''All the things I have done are good. Now let's make sure nobody ever does this again.''

Support for the balanced budget amendment among many Republicans and some Democrats represents a convenient escape-hatch for members of both parties. It is an ideological talisman they can hang around their necks while stumping for votes in the fall elections. It also shifts political fire away from this year's enormous federal deficits.

So far, the debate over the amendment has focused on political considerations. Very little thought has been given to the actual impact of the legislation.

All previous constitutional amendments, with the exception of the prohibition amendment, have been enacted to achieve goals which could not have been achieved by existing statute. The balanced budget amendment is an exception.

The amendment would write fiscal policy into the constitution. The result is that Congress and the president would have a far more limited range of options in dealing with economic circumstances, shifting financial conditions, and national security crises. Specific difficulties such as a surge in demand for entitlement benefits would be harder to address on a timely basis.

As soon as President Reagan endorsed the balanced budget amendment, the American Federation of State, County and Municipal Employees asked Data Resources Incorporated to initiate an economic simulation study of the proposal.

Among the DRI assumptions, and it's a pretty large assumption given the present political climate, is that President Reagan will get about half of his nondefense cuts this fiscal year. The DRI study also assumes implementation of the amendment in FY (fiscal year) 1985.

Here's what the DRI study found:

* Unemployment would jump by 2,650,000, or 2.2 percent by FY 1987.

* The total gross national product would decline by 5.6 percent by FY 1987, or a total of $519 billion between FY 1985 and FY 1987.

* The federal budget in FY 1987 would be cut $163 billion. In fact, there would be an average federal budget decline of 14 percent for the years FY 1985- 1987.

* State and local government revenue would be slashed $49 billion in FY 1987.

Cutbacks averaging 14 percent in the federal budget would force large reductions in all major federal functions. For example, totally eliminating federal grants to state and local government - that means closing down medicaid, social services, the Highway Trust Fund, Aid to Families with Dependent Children , waste water treatment, education aid, revenue sharing, and a host of other programs - would only save about $60 billion. That's less than half the cuts which would be required if the balanced budget amendment were law.

One of the major tradeoffs, say supporters, would be reduced inflation. But, according to the DRI study, the inflation rate would only drop from 7.2 percent to 6.9 percent in FY 1987. So, we gain a three-tenths of 1 percent advantage over the cost of living if the amendment is in force in 1987. In return, we pay for each one-tenth of a percent drop in inflation with 900,000 jobs!

The balanced budget amendment is a poor solution to mounting federal deficits. In addition, it would severely hamper policymaking. The amendment should be rejected by the Congress because it will not stand the test of time, or circumstances.

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