Public Finance

"The government has no source of revenue, except the taxes paid by the producers. To free itself - for a while - from the limits set by reality, the government initiates a credit con game on a scale which the private manipulator could not dream of. It borrows money from you today, which is to be repaid with money it will borrow from you tomorrow, which is to be repaid with money it will borrow from you day after tomorrow, and so on. This is known as 'deficit financing.'" -Ayn Rand

PART ONE

In 1936, Republican Representative Harold Knuston of Minnesota proposed what would be the

first constitutional amendment to balance the federal budget. The Knutson resolution would

have established a per capita limit on all federal debt. The proposal stalled and was quashed by

the Judiciary Committee. During the decades that have followed, legislators and economists

have been irresistibly drawn to the lure of a Federal Balanced Budget Amendment (BBA) to the

U.S.Constitution. In September 1995, two economists, (Charles Schultze and Nobel Laureate

James Buchanan) published separate and conflicting articles on the recurring BBA policy issue

in the National Tax Journal. The more convincing argument regarding the BBA would seem to

have been advanced by Charles Schultze. Schultze opines “Balancing the budget over the

medium-term future and on average maintaining long-run balance (at least) thereafter is

desirable and that the amendment should be judged on its utility as a means to desirable end.

Judged that way, however, the proposal is seriously flawed in several ways.” Schultze first

highlights a major concern with the implementation of a balanced budget amendment into an

economy with an existing sub...

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...any other agency or individual. This debt cannot be sold or

exchanged at auction or on the secondary market. The concern about borrowing from non-

marketable sources is the ability to pay back the trust fund when the debt becomes due for

redemption. If a large amount of debt to the trust fund was to be redeemed it could potentially

require a tax hike or cutting expenditures to pay the debt. While non-marketable debt does not

create the difficulties of marketable debt in redemption or level of concern, this type of debt still

stands as an outstanding obligation on the Treasury.

Works Cited

Schultze, C. (1995) “The Balanced Budget Amendment: Needed? Effective? Efficient? National Tax Journal, Vol 48

Buchanan,J. (1995) “Clarifying Confusion about the Balanced Budget Amendment” National Tax Journal,Vol 48

Rosen H,Gayer T(2010) “Public Finance, 9th