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Pros & cons of budget cuts

Updated March 23, 2017

When economic hard times hit, households and businesses face hard choices about spending and investment. Faced with the possibility of job losses and less business, families gather around the kitchen table and business leaders meet in conference rooms as they go over their checkbooks and budgets, deciding where to make cuts. Such sacrifices are not limited to families and firms. A sluggish economy generates less revenue for governments, forcing tough decisions from policy makers. Like most decisions in politics, government budget cuts come with pros and cons.

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Pro: Alternative to Raising Taxes

When revenues from taxes and fees decline, government officials face a gap between projected revenue and planned expenditures. Unlike the federal government, which can borrow to finance its budget deficits, state and local governments must balance their budgets. For governments facing a budget deficit, balancing the budget means raising taxes, cutting spending or instituting a combination of both. Raising taxes is never popular but can be political suicide during an economic recession. Often, policy makers prefer to look for budget cuts as an alternative.

Pro: Reducing Government

Households and businesses have to live within their means. Politically conservative citizens and policy makers contend that government should live by the same standards. For advocates of a smaller, less intrusive government, budget cuts reduce government involvement in the economy and the lives of citizens. Political scientist James E. Anderson, author of "Public Policymaking: An Introduction," writes that most policies cannot be implemented without funding. Budget cuts that sharply reduce or eliminate funding can kill a program without repealing the law that created it. Depending on the nature of the cuts, a reduced budget may mean less government regulation of business activities or less involvement in education and health care.

Con: Fewer Government Services

Government budget cuts may reduce the scope of government, but also may reduce services that many citizens want. Reductions in planned spending may delay needed street repairs, reduce local garbage pickups and reduce hours at local public health care facilities, public libraries and recreation centres. Policy makers facing spending cuts prefer to avoid cutting spending for police and fire protection, as cuts in those areas could affect public safety. Politicians who reduce or eliminate popular public services through budget cuts may face punishment from angry voters at election time.

Con: Negative Economic Effects

Like spending by consumers and businesses, government purchases of goods and services contribute to the gross domestic product (GDP), an aggregate measure of overall economic output. English economist John Maynard Keynes, writing during the Great Depression of the 1930s, argued that government should boost its spending during a sluggish economy to stimulate overall output. Government budget cuts reduce public spending, which affects the overall economy. For example, defence spending cuts that eliminate spending on certain weapons systems and military equipment reduce business for the firms that produce these goods. The companies could be forced to lay off workers, raising unemployment and reducing GDP even further.

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About the Author

Shane Hall is a writer and research analyst with more than 20 years of experience. His work has appeared in "Brookings Papers on Education Policy," "Population and Development" and various Texas newspapers. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science.

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