Image via WikipediaThe best way to overcome budget deficits is through spending cuts or raising taxes (Yaya, 2010). Citing Buchanan and Wagner (1978), Yaya (2010) contends that an increase in taxes could be a remedy for deficits. There is agreement among economists that balancing the budget would allow interest rates to fall, savings and investment to go up, trade deficit to contract and the economy to grow more rapidly over a longer period of time. However, that is not the case for congressional leaders who have made budget balancing a subject of furious debate every time the issue is raised up for discussion. Budget balancing may not be good for every American. A good number of Americans, especially those of lower income who disproportionately rely on government assistance could be affected if the budget is balanced. Balancing the budget may have ramifications at times. Results may vary from year to year for different households and things could go distorted.
Whenever a budget is balanced, there always emerge winners and losers. Beneficiaries include those who benefit from tax breaks, families with young children who benefit through income tax breaks, college students aided by tuition tax credits and higher scholarship grants, and investors who gain from selling stocks and bonds. Balancing the budget is a very difficult issue to deal with. The recent stand-off between President Barack Obama and Speaker Boehner shows how American leaders often times fail to reach consensus on budgetary issues despite seeing the explosive rise in national debt.
Yaya, K. (2010). Budget balance through revenue or spending adjustments? An economic analysis of the Ivorian budgetary process, 1960-2005. Journal of Economics and International Finance Vol. 2(1) pp. 001-011.
Buchanan, J.M. and Wagner, R.W. (1978). Dialogues concerning fiscal religion., J. Mon. Econ., 4: 627-636.