Budget Reform Basics
Governments pursue budget reform for many reasons. If government spending is greater than the amount of money the government takes in with taxes, reform may be necessary to balance the budget and control government debt. Politicians may pursue changes in government spending or taxation to gain favor with their constituents. In the United States, budget reform occurs through the passage of bills in Congress and state government houses that affect taxes and spending.
Budget reform can have many potential benefits. Reforms can reduce wasteful expenditures and help lessen government deficit, potentially leading to surpluses. A surplus occurs when a government takes in more money than it spends. Budget reform can result in funding for new beneficial programs or increases in funding education, infrastructure or other areas to help certain individuals or organizations. Tax reforms can benefit individuals and businesses if they reduce their tax burden. Cutting taxes can stimulate spending, which can help stimulate economic activity.
Budget reform only describes changing the collection or spending of money, not whether spending or collection goes up or down. Any potential benefit to budget reform can also be a drawback if changes occur in an unfavorable direction. For instance, if the government reforms its budget by cutting spending on education and infrastructure, it could hurt students and those who rely on public infrastructure spending for their jobs. Increases in spending can make governments fall into debt.
Government spending and taxation is controversial, and any budget reform that a government pursues is likely to be viewed as beneficial by some and negatively by others. Budget reforms passed by Congress often reflect a compromise between desires of different political parties.