Can we make ends meet?

Essay by Anonymous UserUniversity, Master'sA+, November 1996

download word file, 8 pages 4.7

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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...