Limits on Federal Spending

November 24, 1972

Report Outline
Post-election spending debate
Previous Attempts to Cut Spending
Prospects for Budgetary Reform
Special Focus

Post-election spending debate

Fears Arising Over Federal Budgerary Deficits

The Federal government faces three choices as the budget for fiscal year 1974 is being prepared, none of them palatable. It may cut back spending or it may raise taxes to balance the budget. Or it may do neither and thus permit another large deficit—a course which would be sure to spread new inflation through the economy. Economists believe higher taxes will be the inevitable choice because the government is either unwilling or unable to cut its spending programs. In a real sense, the budget is running out of control. Caspar W. Weinberger, director of the Office of Management and Budget (OMB), has told Congress, “The clock is running out; there can be no question that the time for fiscal responsibility is now.”

Ironically, Weinberger's comment came as he asked Congress to increase the temporary ceiling on the public debt from $450 billion to $465 billion. This action was necessary for the Treasury Department to borrow money to finance the deficit being run up in the current fiscal year ending June 30, 1973. Based on the President's desire to hold the year's spending to $250 billion, Weinberger's office estimated in September that the deficit will amount to $25 billion. Private economists are thinking in terms of $35 billion to $40 billion. No one is forecasting a deficit below those incurred in the past two fiscal years—1971 and 1972—of $23 billion each.

While budgetary deficits are a strong stimulus to the economy during recessions, they are widely believed to be inflationary during a period of recovery, like the present. Although committed to fiscal restraint, the President has defended a deficit in fiscal 1973 as necessary. He has said the budget would show a $700 million surplus if there was full employment. Under the full-employment-budget doctrine, a deficit “provides necessary stimulus for expansion, but is not inflationary” as long as expenditures do not exceed the revenues that would accrue to the government under conditions of full employment. Others argue that this is specious reasoning invoked to cloud the issue. Moreover, they say adherence to the concept of full-employment budgets is a leading cause of inflation.

ISSUE TRACKER for Related Reports
Federal Budget and National Debt
Sep. 01, 2017  National Debt
Jul. 12, 2013  Government Spending
May 15, 2012  State Capitalism
Mar. 18, 2011  National Debt
Nov. 14, 2008  The National Debt
Dec. 09, 2005  Budget Deficit
Apr. 13, 2001  Budget Surplus
Feb. 01, 1991  Recession's Regional Impact
Jan. 20, 1984  Federal Budget Deficit
Sep. 09, 1977  Federal Reorganization and Budget Reform
Nov. 24, 1972  Limits on Federal Spending
Jan. 08, 1969  Federal Budget Making
Dec. 06, 1967  National Debt Management
Aug. 01, 1962  Fiscal and Budget Policy
Nov. 27, 1957  National Debt Limit
Mar. 20, 1957  Spending Controls
Dec. 24, 1953  Public Debt Limit
Feb. 13, 1952  Tax and Debt Limitation
Nov. 30, 1949  Government Spending
Jan. 06, 1948  Legislative Budget-Making
May 23, 1944  The National Debt
Feb. 01, 1943  The Executive Budget and Appropriations by Congress
Dec. 27, 1939  Revision of the Federal Budget System
Oct. 10, 1938  The Outstanding Government Debt
Nov. 20, 1937  Budget Balancing vs. Pump Priming
May 02, 1936  The Deficit and the Public Debt
Oct. 19, 1934  The Federal Budget and the Public Debt
Feb. 10, 1933  Extraordinary Budgeting of Federal Finances
Dec. 01, 1932  Reduction of Federal Expenditures
Dec. 01, 1930  The National Budget System
Oct. 02, 1930  Federal Revenues and Expenditures
Nov. 02, 1927  The Public Debt and Foreign Loans
Nov. 15, 1926  Rising Cost of Government in the United States
Feb. 05, 1925  Four Years Under the Budget System
Budget and the Economy
Deficit, Federal Debt, and Balanced Budget