Most American states are required, by law, to balance their budgets. As a result, they do - to a large extent. The United States federal government, however, does not, and has not for many years.

One primary difference, however, between the States and the Federal Government is the method by which a "balanced" budget is declared. For states, there are typically two budgets - the first is an operating budget which only includes those items which are recurring in nature. The second - a capital budget - is for large capital investment costs that are intended to be amortized over many years. For capital expenditures such as bridges, roads, etc..., typically financed by bonds, there is no need to balance this budget.

Now, grant you, many of the largest expenses of the Federal Government (entitlements, salaries for defense and administration, servicing the debt) are not part of the Capital Budgetary Outlay. As such, this alone would not necessarily "balance" the budget - but it would make the numbers look a lot better.

So, why hasn't Congress adopted this technique yet? Considering the sheer number of budget tricks that regularly do get used, there must be some good reason not to adopt this one. What are they?


2 Answers 2


Most state constitutions heavily regulate the ability of state and local governments to incur debt, and place different regulations on how available funds may be spent that often break down subcategories such as operating and capital expenditures. The capital expenditures budget is ordinary tied at the state and local level to specific authority to issue municipal bonds (i.e. state and local government bonds) for a particular purpose.

The U.S. Constitution, in contrast, predates this kind of fiscal specificity, in favor of broad authority to incur debt and was intentionally vague. It does not require that the federal government have a balanced budget as many state constitutions do.

Further, the U.S. federal government's budget is so enormous that the distinction between ordinary operating expenses and capital expenditures, which normally corresponds roughly to debt financed purchases and current income funded purchases, breaks down. The only real distinction between operating expenditures and capital expenditures in the U.S. Constitution is that Congress is constitutionally prohibited from making appropriations for the Army for a period of more than two years.

Because there is no compelling legal reason for the federal government to distinguish between capital expenditures and operating expenses, in most years, Congress does not do so.

Congress struggles to execute even one overall budget, and one full set of appropriations bills to implement that budget (sometimes accompanied by a debt ceiling increase), let alone another full budget for capital expenditures and another full set of appropriations bills for capital expenditures.

  • "Congress is prohibited from entering into most kinds of irrevocable multiyear government contracts" -- can you explain? The only ban of multiyear appropriations I'm aware of is for Army appropriations. It doesn't apply to Navy appropriations, but also doesn't apply to anything that is neither Army nor Navy.
    – cpast
    Jan 5, 2022 at 0:19
  • Fair. Article I, Section 8 actually states: "To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years" but I was writing from memory. Fixed.
    – ohwilleke
    Jan 5, 2022 at 0:26

Most of it boils down to deficit spending. There are a considerable number of people in Congress who believe that the way to jump start the economy in a system such as the United States is to spend money. As the government is the single largest consumer and customer when it spends money, it creates jobs. (This is Keynesian economic theory). For this reason, they argue, the government needs the ability to spend in deficits which would be prohibited by a balanced budget approach. Now, this is all different in practice and in theory, but this is the largest issue when it comes to balanced budget. Whether it is a good idea or not is a whole other story.

All in all, there aren't enough people that go against this thinking to be able to stop it. Though it is a topic of huge debate in Congress so it'll be interesting to see what happens in the future.

  • This doesn't answer the question. Having a separate capital budget certainly isn't inconsistent with Keynesianism, as public sector capital investment is often an important component of Keynesian stimuli (e.g. roads, bridges, buildings, green energy projects).
    – Stuart F
    Jan 7, 2022 at 12:41

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