To Make or Balance a Budget
In a democratic republic three methods exist by which to bring a budget into balance:
1. Raise taxes.
2. Cut spending.
3. Benefit from a booming economy.
To some extent, each of the first two negatively affects the third. That's bad since, barring inflation, a booming economy costs nothing and benefits everyone. Booms increase revenue without raising tax rates, and thus enable government to pay its bills without cutting spending.
Raising taxes, especially on people with low incomes, takes money -- i.e. demand -- out of the market. Government spending directly puts money into the economy, consequently cutting spending has the same effect as raising taxes.
For these reasons, when the economy has entered recession a government should avoid either raising taxes or cutting spending. It ought to raise taxes during boom times only if the boom is creating inflation, i.e., when the value of money falls too sharply. It may cut spending for similar reasons OR when the need for a particular expenditure no longer exists, as when, for example, a war has ended. Excess funds generated by booming economies, or by suspended needs, ought always to be used to reduce debt.
Wisdom suggests that ideological concerns ought never be entertained in the preparation or balancing of a budget, but because the people seldom think or act wisely, the government's leadership may be compelled to employ rhetoric and misleading statements in order to maintain a sane budgetary approach. This advice will be extremely difficult to follow since the leadership is typically more ideologically driven than the people.
1. Raise taxes.
2. Cut spending.
3. Benefit from a booming economy.
To some extent, each of the first two negatively affects the third. That's bad since, barring inflation, a booming economy costs nothing and benefits everyone. Booms increase revenue without raising tax rates, and thus enable government to pay its bills without cutting spending.
Raising taxes, especially on people with low incomes, takes money -- i.e. demand -- out of the market. Government spending directly puts money into the economy, consequently cutting spending has the same effect as raising taxes.
For these reasons, when the economy has entered recession a government should avoid either raising taxes or cutting spending. It ought to raise taxes during boom times only if the boom is creating inflation, i.e., when the value of money falls too sharply. It may cut spending for similar reasons OR when the need for a particular expenditure no longer exists, as when, for example, a war has ended. Excess funds generated by booming economies, or by suspended needs, ought always to be used to reduce debt.
Wisdom suggests that ideological concerns ought never be entertained in the preparation or balancing of a budget, but because the people seldom think or act wisely, the government's leadership may be compelled to employ rhetoric and misleading statements in order to maintain a sane budgetary approach. This advice will be extremely difficult to follow since the leadership is typically more ideologically driven than the people.
Nothing further need be said about making or balancing a budget.
posted by Benedict S. at 6:59 AM
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