Fiscal and Budget Policy

Report Outline
Tax Reduction and Threat of Recession
Variations in Budget and Fiscal Policy
Budget Policies of European Countries

Tax Reduction and Threat of Recession

Current Debate About Anti-Recession Tax Cut

Advocacy of immediate reductions in individual and Corporation income taxes to reverse the current slow-down in business activity has given rise to wide discussion of federal fiscal and budget policies. The government in-curred a $6.3 billion deficit in the fiscal year which ended June 30. A tax cut large enough to bring about the de-sired economic effects would produce a still bigger deficit in fiscal 1963. The only way to hold down that deficit would be to slash expenditures, but drastic cuts in spend-ing might offset the economic stimulus sought from a tax cut.

Main Question in Debate on Immediate Tax Cut

The main question, therefore, is whether a deliberately incurred deficit of substantial proportions is a risk worth taking in the hope that it will ward off a recession that would be more costly to the Treasury and to the country. The question involves the clash between defenders of ortho-dox fiscal policy and proponents of a compensatory fiscal policy, and also differences over the merits of various concepta of budget accounting.

The fiscal and budget policies of Western European countries, credited in part for the present health of their economies, are being studied by American economists to determine if they hold lessons of value for the United States. Different accounting methods appear to simplify the task of budget balancing among the European govern-ments. In this country, on the other hand, changes in budget and fiscal policy have to be weighed against the possibility that they would accentuate an adverse balance of international payments and a prevailing outward flow of gold.