The theory behind the balanced budget amendment to the Constitution is that heavy government spending and federal deficits are mostly bad, the leading causes of the current U.S. economic mess.
But the Congressional Budget Office has warned that budget balancing can also have a down side. It said that any attempt to balance the budget by 1985 -- as Congress would be pressed to do by the amendment that has gone to the House floor -- could dump the economy into another recession.
Balancing the budget in 1985 would require "additional spending cuts and tax increases (over and above the cuts and tax increases legislated in 1982) that together would add up to $170 billion, or over 4 percent of GNP," the agency said in a recent report on a study of the pending amendment and other spending limitation options.
The impact of any combination of such large tax increases or spending cuts adding up to $170 billion would quickly spread throughout the economy, CBO cautioned. "The initial reduction in incomes of taxpayers, or of entitlement recipients, or of firms selling goods and services to the government would set off a chain of declining purchases, reductions in output, and job-cutting. This shock would come at a time of nearly 8 percent unemployment the anticipated rate in 1985 .
"It is extremely unlikely . . . that a reduction in fiscal stimulus sufficient to balance the budget as early as fiscal years 1984 and 1985 would be consistent with continued economic recovery," the report concluded.
The 1985 example is not an altogether idle one.
One version of the balanced budget amendment has already passed the Senate. If the House were to go along, an amendment could clear Congress this year. Forty-six state legislatures meet in January and three more later in 1983. Only in Kentucky does a legislature not meet.
If in the first nine months of 1983 the conservatives who support the amendment could muster majorities in 38 states, the amendment's strictures would apply in fiscal 1985, the budget for which will be debated during 1984.
Congress would have two choices:
* It could waive the balanced budget requirement the first time it became effective, but it could do so under the amendment's terms only if it could muster a 60 percent majority during the heat of a congressional and presidential election year.
* It could adopt that enormous package of spending cuts or tax increases, with the economic risk that would entail.
The vast majority of economists agree that the federal budget should be balanced or in surplus when the economy is close to full employment. Most would also agree that the likelihood of continuing deficits in the neighborhood of $150 billion a year, as CBO projects, is helping depress the economy by boosting long-term interest rates above the levels where they would otherwise be.
The difficulty is that the restrictions of the pending admendment may well become effective, whether in 1985 or later, at a time when the economy is not close to full employment. In that case, the question is whether a 60 percent majority can be found that is willing to take the political heat of saying that a deficit is, in fact, necessary.
The Senate version of the amendment has an added element: a similar "super" majority must be found for any increase in the public debt limit.
In the recent past, the Democratic and Republican leaders in Congress have been hard pressed to find even simple majorities willing to raise the debt limit.
In both the Senate and current House versions of the amendment, outlays in a given year would have to stay below an amount agreed upon in a budget "statement" that would be adopted before the year began. If the economy drops into an unexpected recession, outlays now can rise automatically in response, such as with higher unemployment benefit payments. That could not happen under the amendments unless 60 percent majorities okayed it.
"This requirement to eliminate countercyclical outlays or make compensating reductions in other programs reflects a very different view of the relationship of the federal sector to the economy than is now held," the CBO report said.
"Currently, there is general acceptance that, if the economy declines, the federal sector does not have to decline in proportion to GNP. . . . The authors of[two versions of the amendment] would have federal budgeting come to resemble state and local budgeting under which reductions in public services are made during recessions," CBO noted.
In the Senate version, the debt limit provision would also mean that even the normal reduction in federal tax receipts that accompanies a recession, and helps counter its effect, probably could not be allowed to occur without explicit acceptance by a 60 percent majority.
There is one other irony in the balanced budget idea. About a seventh of the federal budget consists of grants to state and local governments. And these grants, which also make up more than a fifth of state and local government revenues, are among the likeliest parts of the federal budget to be cut if balance is required. If they were to ratify an amendment to cut the federal budget, the states would be voting for cuts in their own budgets at the same time.