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
    Shhhhhh....don't give 'em ideas!!!
    – user4012
    Feb 5 '13 at 2:14
  • :). Unlike most budget games, this is one is legit, IMHO. That said, that may be the reason. ;) Feb 5 '13 at 6:06
  • They are not passing a budget because a) no one in congress is going to vote for a budget that incurs more than a trillion dollars a year in debt. b) any thing less requires cuts to their <strike>pork</strike> critical infrastructure improvement programs. c) why should they pass one now its alot of work and we havent made them pass one in the last 4 years why start now. Feb 5 '13 at 19:47
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    " c) why should they pass one now its alot of work and we havent made them pass one in the last 4 years why start now." And we voted the same people into office this past November.
    – bigdaveyl
    Feb 19 '13 at 19:59
  • Do you have a ref that most US states exclude capital investments from the budget balancing requirements? Ah that just a google search away taxpolicycenter.org/briefing-book/… Also, state pension funds are excluded from balancing, according to that source, quite unlike for [federal] Social Security would have been under the amendment that nearly passed in the 1990s library.cqpress.com/cqalmanac/document.php?id=cqal95-1099955.
    – Fizz
    Oct 1 at 4:56

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.

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