![]() ![]() On the other hand, however, unless we really go out of our way to design taxes hostile to saving and investment, most of the revenues from higher taxes will come at the expense of private consumption. To the extent that private investmentis maintained through increased borrowing from abroad, future income is reduced by the added debt service we have to pay foreigners. Lower private domestic investment reduces the growth of productivity and the level of future national income. Some combination of two consequences will follow: there will be less domestic investment in private plant and equipment here at home, and borrowing from abroad will rise, with an accompanying rise in the U.S. In times of normal full-employment, each dollar of government borrowing absorbs a dollar of scarce private saving, and diverts that dollar away from financing private investment into Treasury securities. Operating the federal government under a capital budgeting rule will lead to lower private investment than would be the case if government investment spending were paid for out of each year s revenues. ![]() On the other hand, if government finances its capital outlays by reducing other, non-investment, spending, by raising taxes, or by forgoing otherwise scheduled tax cuts, the added government outlays will come principally at theexpense of private and public consumption, not private investment. Government capital outlays financed by borrowing will come chiefly at the expense of privateinvestment. In times of normal high employment, additional government investment outlays will necessarily displace some other types of spending in the economy. Rather, those who urge a capital budget for the federal government are proposing a general rule of budgetary operation: Under normal circumstances revenues should cover current operating expenditures (including depreciation of government capital), but net investment outlays should typically be financed by borrowing.1 Adopting such a rule would, in my view, be a mistake, probably at any time, but certainly under the circumstances now facing the nation and the government. This, of course, is not where the controversy lies. Both scholars and government policy-makers could make good use of even more detailed presentations, especially for depreciation. More recently aggregative estimates of capital depreciation have also been published. ![]() Information on federal investment has long been published in relatively full detail. I am going to assume that the major issue before the Commission is not whether the federal government should provide budget accounting data that distinguishes capital from current outlays, accompanied by estimates of the depreciation of government capital. Over the intervening years I have studied and written about budgetary matters as a senior fellow at the Brookings Institution. My acquaintance with budgeting concepts and practices began many years ago, first as Assistant Director and then as Director of the Budget Bureau-the forerunner of OMB. Thank you for inviting me to give my views on the desirability of adopting a capital budget for the federal government. ![]()
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