Why a Balanced Budget Amendment Won’t Stop Washington’s Spending SpreeBy Peter Gorenstein | Daily TickerThe debt ceiling debate has revived the idea of a Constitutional balanced budget amendment. Members of the Republican party in both the House and Senate say the legislation would help reduce the nation's debt problem.
So what is a balanced budget amendment? A balanced budget amendment is a Constitutional rule requiring that spending cannot exceed income. It requires a balance between the projected receipts and expenditures of the government.
While it may make sense on the surface (revenue must exceed costs), a balanced budget amendment does not guarantee the fiscal discipline it implies, says Daily Ticker guest Adam Lerrick, economics professor at Carnegie Mellon University.
"Every state in the United States except Vermont has a balanced budget amendment," says Lerrick. "And yet we've seen that has not stopped many states, including three of our largest states -- Illinois, New Jersey and California -- from basically going bankrupt."
Comment: The rule is this: a balanced budget amendment does not prevent benkruptcy