The result of this procedure was that no general plan for keeping down the expense could ever be effectively put into force, there being too many independent committees to deal with. In 1921, however, Congress passed an act providing for the establishment of a national budget system and the rules of both chambers in Congress were altered so as to carry the new plan into effect. |The new budget system.| The departmental estimates now go to an official in the Treasury Department known as the Director. He puts them together into a budget and with the President’s approval submits them to the House of Representatives. Here they are considered by a single large committee, known as the Appropriations Committee, and all proposals of expenditure made by individual congressmen (after they have been approved by the committees directly concerned) are also submitted to this committee. The latter then lays before the House a complete budget or plan of expenditures for the ensuing fiscal year. When this budget, with or without changes, passes the House, it is forwarded to the Senate, where it is likewise considered by a single committee. After it has been passed by the Senate it goes to the President for his approval. The President cannot veto individual items in the budget but must accept or reject it as a whole. This is a serious handicap because the rejection of the entire budget would leave the departments without funds with which to carry on their work. The great advantage of the new budget system is that it enables Congress to make a comprehensive plan of expenditure for the year and thus to hold the expenses within the estimated revenues.
Is it necessary for governments to borrow?
Public Debts: Why Governments Borrow Money.—Nearly all nations, states, counties, cities, and even villages have debts. Why do they find it necessary to borrow money? Why should they not, like wise individuals, adopt a pay-as-you-go policy? The reason is that such a policy would be very unfair to the present taxpayers.[taxpayers.] Suppose, for example, that a town or city builds a new high school. The building will cost a great deal of money and may reasonably be expected to serve its purpose for twenty, thirty, or even forty years. Now there are two ways in which the community can defray the cost: It can levy a heavy tax rate upon the property of the people at once, doubling or trebling the usual tax rate if necessary, and thereby obtaining the money with which to pay cash for the school. Or, on the other hand, it may borrow the money and arrange that this amount (with interest) shall be repaid in annual installments over twenty or more years, thus spreading the burden over the whole period in which the building fulfils its purpose.
Proper and improper borrowing.
Which of these is the fairer method? The latter plan has the merit of placing the burden upon all those who get the benefit; but it has the defect of saddling the taxpayers of the future with a debt which they have had no share in creating. Governments, however, are much more concerned with the present than with the future, for it is the present taxpayer who decides the elections. Wherever practicable, therefore, they endeavor to finance public improvements by selling bonds rather than by increasing the present tax rates. State roads, public buildings, bridges, and other costly enterprises are financed by borrowing. The construction of the Panama Canal by the national government was not paid for at the time; the money with which to build it was borrowed by issuing long-term bonds. Governments sometimes go further and borrow money to make good a shortage in current expenses. This is an unwise policy; not one honest word can be said in favor of it. Current expenses should be paid from the taxes of today, not from the taxes of ten years hence. When a government borrows money to pay current expenses it usually defends its action by saying that the people approved it at the polls. Of course the people will usually approve things of this sort. When you ask a man whether he prefers to pay for a thing himself or let somebody else pay for it, there is little doubt what his answer will be.
War is the greatest cause of borrowing. During the Civil War the United States government borrowed about three billion dollars, most of which was repaid within thirty years. During and immediately after the World War it secured, by the issue of Liberty Bonds and Victory Notes, about twenty-six billion dollars, all of which becomes repayable at various dates before 1950.[[227]]
THE NATIONAL DEBT
1860-1920
The largest additions to the national debt of the United States were made during the years 1861-1865, and the years 1917-1919. During the former of these two periods the debt rose from less than fifty millions to nearly three billions; during the years 1917-1919 it increased from one to twenty-seven billions or thereabouts. By using the logarithmic or proportional scale for comparing these two periods it will be seen that the ratio of increase was less in the later period than in the earlier.