CAN WE MAKE ENDS MEET?
Should the government balance the federal budget? One might
assune assume that it would be good to balance the federal budget.
However, a few economic thinkers disagree and have suggested new
paradigms. For the last sixty years, the government has run budget
deficits as a primary method for stimulating economies with high
unemployment rates. In theory, the budget should return to balance or
surplus during boom times.
According to the article, 'The Balanced Budget Constitutional
Amendment,' (Center on Budget and Policy Priorities, January 9,
1995), the Reagan administration cut taxes to such a degree that the
United States would forever face high deficits, regardless of how hot
the economy was. The writers of that article believe the answer is not
a balanced-budget amendment because they believe it would prevent
the federal government from combating recessions:
Worse yet, under such an amendment, the federal government
would be forced to make recessions worse.
When the economy
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 the
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 for a balanced is as follows: Deficits force the Federal
Government to borrow money on the capital markets. That
Government borrowing competes with businesses borrowing to buy
factories and machines that make workers...