Evening star., 1963-02-15
THE DEFICIT DEBATE
THE DEFICIT DEBATE .... ..-- .....
Government Spending Seen Needed
To Offset Economy's Weakness
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Lost Of Three Articles
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pacity. Corporations borrow
most heavily when business is
so good that there are favor
able prospects for making prof
its on increased output. Cor
porate borrowing typically de-
clines when the economy is so
weak that investment is not
very profitable.
Similarly. 1t is contended,
Government borrowing can fl
nance worthwhile investment
in the Nations economic
growth.
Critics raise a moral argu-
ment against deficits, charging
that Government borrowing
now imposes unfair burdens on
future generations.
But the administration main-
tains that the Presidents pro-
gram would stimulate invest
ment and so increase the wealth
bequeathed to future genera
tionS.
Interest payments and amor
tization Of the Federal debt can
lead to tax increases to handle
the costs. it is agreed, but fu-
ture generations will have in
creased ability to pay If the
economy grows fast.
Americans own Debt
Treasury interest payments
would deplete the nations
wealth If Government bonds
were owned by foreigners. but
about 95 per cent Of the Fed
eral debt is owned by Ameri-
cans. Interest payments, there
fore, transfer money from tax
payers to creditors within the
country.
Most industrial countries dis
tinguish between spending for
current operations and outlays
for investment. on grounds that
investments yield long term
benefits and build national as
sets.
The distinction is drawn by
compiling both current and
capital budgets. Current expen-
ditures usually are balanced by
current revenues. But capital
outlays are financed to q large
extent by borrowing, because
future generations will share
the benefits.
Major countries Of Europe are
admired because they balance
their budgets. But the record
would look different If they fol-
lowed United States practice
and Jumped capital spending
with outlays for current opera
tions.
On that basis, the British
budget would have had nine
deficits in the IL years from
1850 through 1860. France would
have had deficits in all 10 years
from 1851 through 1860, and
West Germany would show def
icits In four years out of six
from 1855 through 1860.
s Deficits In ii Years
The United States, which is
criticized by some Europeans
for running deficits. had six
deficits in IL years from 1850
through 1860.
There is some sentiment for
adopting the capital budget sys-
tenn in the United States, but
opponents denounce it as a
device to sugarcoat deficits.
They contend that the orthodox
budget provides the most mean
ingful picture Of the Govern
ment's financial status.
Traditionally, opposition to
Government deficits has been
at base an argument against
Government spending. II bor-
rowing can be restrained, spend
ing will be discouraged. The
purpose OF the debt ceiling is
to curb spending, although 1t
has not worked that way.
Government spending often
is wasteful and relatively un-
productive. conservatives
charge. They q so contend
large-scale Federal spending en-
croaches on individual freedom,
impairs the private enterprise
system and saps the vitality Of
State and local Governments.
II the Government reduced its
expenditures, according to the
conservative argument, taxes
could be cut and the private
economy could use the Nations
resources TO promote growth
and wealth.
Emphasizes Tax Cuts
To a degree, the President
has muted opposition to budg-
ct deficits by emphasizing tax
cuts rather than increased Fed
eral spending. Tax cuts are the
main objective Of those who
oppose deficits.
But they still are not salts
fled with the Presidents plan
TO finance the tax cuts by bor-
rowing instead OF by reducing
expenditures.
What the economy needs TO
grow. they contend. is increased
Investment by the private econ
omy. When the Government
horrows the argtir1ant rnntin.