Ever since the Great Depression of the 1930s, and the theories of British economist John Maynard Keynes, running budget deficits has been a primary method for stimulating economies that have high unemployment rates. In theory, the budget should re turn to balance or surplus during boom times. The Reagan administration discredited this notion, cutting taxes to such a degree that the United States would face perpetually high deficits, regardless of how hot the economy was.

But the answer is not a balanced-budget amendment, unless one wants to prevent the federal government from combatting recessions. Worse yet, under such an amendment, the federal government would be forced to make recessions worse. When the econom y slows down, income and Social Security tax revenues drop, due to falling wages and profits. Meanwhile, costs for some programs, such as unemployment compensation, rise.

These changes automatically put the federal budget into deficit, even if a balanced budget had been planned at the beginning of the fiscal year. If a constitutional amendment requires the government to balance spending and revenues at the end of t he year (not just in the original plan), then the White House would be forced to cut spending or raise tax rates, thereby slowing the economy down, just at the time when it is most in need of stimulus.

One argument used by conservatives in favor of balancing the federal budget is that each of the 50 states manages to equalize its own revenues and spending. There are several flaws with this idea, as the Center on Budget and Policy Priorities poin ts out. First, it is precisely because states are unable to counter recessions that the federal government must have the power to do so. Second, many states require that a balanced budget be planned for, but not that it actually be achieved at year-end. T hird, most states have separate budgets for operating and capital expenses, with borrowing allowed for capital investments such as roads, bridges, and schools (just as households borrow for home mortgages and car purchases). At present, the U.S. governmen t has no separate capital budget, making the deficit appear worse than it really is. In fact, the Clinton administration claims that in fiscal 1995 federal investment spending will be $235 billion (almost half of it for the military), exceeding the defic it.

Resources: "The Balanced Budget Constitutional Amendment," Center on Budget and Policy Priorities, January 9, 1995.