Argument To Balance The Federal Budget Is Flawed Many States, Businesses And Families Are Also In Debt

Perhaps the most enduring myth in the debate raging in Congress over a balancedbudget amendment is the fable that since states, cities and even families have to balance their budgets - the federal government should do the same.

Indeed, the public’s broad support for balanced budgets seems to be based on the premise that what’s good for households, states and cities should also be good for the federal government.

But the fact is, many states and cities do not balance their budgets. And neither do most households. For that matter, very few businesses are clear of debt.

At the moment, states and cities are deeply in debt. They owe bondholders and other creditors some $1.3 trillion. That’s up about 80 percent from the debt owed seven years ago and is roughly equal to one-fourth of the current federal debt.

Personal debt in the United States stands now at about $3.9 trillion. That includes $750 billion owed on cars, boats and other consumer goods and credit cards. And it accounts for the $3.1 trillion owed on home mortgages.

Business debt is a whopping $3.5 trillion.

Just like the federal government, families, businesses, states and cities borrow lots of money.

If states and cities did not go into debt, there would be overcrowded schools and universities, fewer roads, fewer mental hospitals, fewer parks and playgrounds - all the things that make life safer and more bearable and that most people want.

If families didn’t go into debt, all but a few would be renting rather than buying homes, driving old clunkers instead of new ones. Many would be wearing threadbare clothes instead of using credit cards to buy new duds.

And if businesses didn’t borrow, they wouldn’t grow and provide more jobs.

“The real issue is not that people and their governments go into debt,” said Gary Jacobson, a political scientist at the University of California in San Diego. “The issue is whether their incomes are sufficient to manage the debt.”

That, of course, was the main problem with the federal debt in the 1980s. The debt was growing faster than the size of the domestic economy. That trend has been reversed, but the huge run-up in the debt during the ‘80s has left federal taxpayers with a slower-growing, but still immense, debt of $4.8 trillion that siphons off 16 percent of the annual federal budget just to pay the interest.

Supporters of a balanced-budget amendment to the Constitution say that the amendment is the only way to impose fiscal discipline on Congress. Without it, they say, Congress will be unwilling to make the tough choices to prevent deficits from starting to expand again. In January, the House approved an amendment that would require a balanced federal budget by 2002. The Senate is debating the measure.

Quite apart from the issue of government borrowing is the vast difference between the roles and responsibilities of the federal and state governments.

“In the context of the balancedbudget amendment debate,” said David S. Liebschutz, associate director of the Center for the Study of the States at the Rockefeller Institute in Albany, N.Y., “it is a specious analogy to compare the state and federal governments.”

The federal government, Liebschutz said, “has a far broader role to play in the affairs of our people.”

The national government, he said, is responsible for maintaining a large defense establishment - at an annual cost of $260 billion.

In addition, the federal government runs massive old-age pension, disability, health-care and welfare programs. States chip in for some of this, but the federal government bears the brunt of the load and helps even the differences between rich and poor states.

The federal government is also the lender of last resort for people and businesses ravaged by natural disasters.

It supplies the safety net for unemployed workers during recessions, and is expected to buffer the blows from economic booms and busts.

It maintains a foreign-aid program that buttresses the nation’s security and promotes trade opportunities for American industry.

It manages a price-stabilization program that prevents wild fluctuations in food costs.

“The federal government,” said political scientist John Gilmour of Washington University in St. Louis, “makes direct payments to individuals - Social Security, veterans’ pensions, disabled people - who are eligible by virtue of their age or condition and can’t be turned down, by law, if they qualify. Just the size and scope of these `entitlements’ differentiate the federal from the state governments.”

Most ironic of all, most states are the beneficiaries of large infusions of federal aid, amounting on average to more than one-fifth of their annual budgets. In short, state operating budgets would either be much punier or chronically in the red without the money from Washington.

Gilmour and the other students of government acknowledge there are some credible arguments for reducing the national debt and curbing government spending.

But they also say that the federal government’s obligations differ so vastly from the duties of families and states that it is disingenuous to argue that it must be bound by the same rules of budgeting.