A Good Word for Deficits

Deficits have a bad reputation, and (since Reagan became President) a bad press as well. They deserve it, for, ordinarily, a deficit is created when Congress tries to bribe voters by spending money while not bothering them with taxes to pay for it. The difference between expenditure and tax revenue, the deficit, is covered by borrowing. By creating a deficit the government increases the share of the national product it can buy, to use, or waste, or redistribute. New deficits thus necessarily decrease the share of the national product private citizens can invest, or consume, regardless of whether those deficits are financed by borrowing or by raising taxes later.

However, as Milton Friedman has correctly stressed, increased taxes make taxpayers aware that more of their income is being taken by the government, while borrowing does not. For those who wish to limit the government share of our national product there is a political advantage, then, in insisting that borrowing be replaced by taxation: Taxpayers burdened with higher taxes realize what is happening and object. They try to limit government expenditures and may succeed. The governmental spenders, on the other hand, often prefer borrowing to taxing—although they prefer either to reducing expenditures—for the same reason. Expenditures always can be used to bribe voters with other people’s money—a temptation politicians find hard to resist. Thus, I enthusiastically support the constitutional amendment, proposed by Professor Friedman and others, to compel Congress to balance the budget and limit expenditures by requiring more than a simple majority for creating or adding to a deficit or for increasing expenditures, however financed, if they raise the proportion of the national income taken by the government. Such an amendment is our best hope for restraining the government from taking an ever higher share of the national product.

EH

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Ernest van den Haag

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Deficits have a bad reputation, and (since Reagan became President) a bad press as well. They deserve it, for, ordinarily, a deficit is created when Congress tries to bribe voters by spending money while not bothering them with taxes to pay for it. The difference between expenditure and tax revenue, the deficit, is covered by borrowing. By creating a deficit the government increases the share of the national product it can buy, to use, or waste, or redistribute. New deficits thus necessarily decrease the share of the national product private citizens can invest, or consume, regardless of whether those deficits are financed by borrowing or by raising taxes later.

However, as Milton Friedman has correctly stressed, increased taxes make taxpayers aware that more of their income is being taken by the government, while borrowing does not. For those who wish to limit the government share of our national product there is a political advantage, then, in insisting that borrowing be replaced by taxation: Taxpayers burdened with higher taxes realize what is happening and object. They try to limit government expenditures and may succeed. The governmental spenders, on the other hand, often prefer borrowing to taxing—although they prefer either to reducing expenditures—for the same reason. Expenditures always can be used to bribe voters with other people’s money—a temptation politicians find hard to resist. Thus, I enthusiastically support the constitutional amendment, proposed by Professor Friedman and others, to compel Congress to balance the budget and limit expenditures by requiring more than a simple majority for creating or adding to a deficit or for increasing expenditures, however financed, if they raise the proportion of the national income taken by the government. Such an amendment is our best hope for restraining the government from taking an ever higher share of the national product.