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Requiring the federal government to maintain a balanced
budget is unrealistic because of the certainty of the unknowns.
Examples of the unknowns can be seen as major natural
disasters such as hurricanes and other severe weather-related
damage. Not to mention at any given time our nation may be at
war with other countries which can consume billions of dollars
at any given time. Since states do not have the means to print
their own money, they must adhere to strict budgets as they
cannot monetize their debt. Many states throughout the years
have created rainy day funds which allow them to offset any bi-
yearly budget shortfalls in case of a chaotic market failure. The
federal government has different approaches to finance public
goods. 1) They can spend tax money or 2) they can borrow
against the deficit. This allows the government the flexibility to
provide goods to the public. However, fiscally irresponsible
actions can have a traumatic effect. Borrowing to finance public
expenditures postpones the tax burden to the future. A budget
surplus adds to national savings and can lower interest rates and
increase investments. As deficits and debt increase, more tax
revenue must be allocated to paying interest on the debt rather
than providing government goods and services.

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Requiring the federal government to maintain a balanced  budget is u.docx

  • 1. Requiring the federal government to maintain a balanced budget is unrealistic because of the certainty of the unknowns. Examples of the unknowns can be seen as major natural disasters such as hurricanes and other severe weather-related damage. Not to mention at any given time our nation may be at war with other countries which can consume billions of dollars at any given time. Since states do not have the means to print their own money, they must adhere to strict budgets as they cannot monetize their debt. Many states throughout the years have created rainy day funds which allow them to offset any bi- yearly budget shortfalls in case of a chaotic market failure. The federal government has different approaches to finance public goods. 1) They can spend tax money or 2) they can borrow against the deficit. This allows the government the flexibility to provide goods to the public. However, fiscally irresponsible actions can have a traumatic effect. Borrowing to finance public expenditures postpones the tax burden to the future. A budget surplus adds to national savings and can lower interest rates and increase investments. As deficits and debt increase, more tax revenue must be allocated to paying interest on the debt rather than providing government goods and services.