[xlbskgov] Unbalanced budgets

Permitting unbalanced budgets allows a government to buffer the severity of the business cycle. (Hello, California! Proposition 58) While it is politically easy to do deficit spending, how can we force surpluses to be maintained in good times? In good times, politicians with a short-term view will prefer to cut taxes or increase spending rather than run a surplus.

Simple solutions involve requiring a super-majority to cut taxes or increase spending in "good" economic times with a less political body, or mathematical formula, involved in deciding when those times are. Or the condition is always true and tax cuts or spending increases always require a super-majority.

A more radical proposal is to allow government bond holders a direct vote in the legislature, much like stockholders in a corporation. Perhaps only on spending bills. Perhaps their vote is always mechanical: always voting to increase taxes and decrease spending. Perhaps bonds held by tax payers in the state itself do not count. Or perhaps only they count, encouraging the state's debt to be held by the citizens of the state. Bond holders do not vote on revenue neutral bills.

The greater the debt, the greater the number of votes the bond holders get.

This still don't quite work because after the debt is paid off, the bond holders have no votes, and we revert to the bad old days. Instead we want some amount of reserve to accumulate in preparation for the next economic downturn.

Another idea is the tax cuts or spending increases may not take effect until, say, 4 years after the bill is passed. This lag is timed to approximate a typical business cycle. Tax increases and spending cuts are not lagged, but there is plenty of political pressure not to have those too frequently. Revenue-neutral bills are also not delayed. This makes it difficult to do quick fiscal stimulus in the event of an economic downturn, though we could exercise some mechanisms not tied to a specific amount of government spending, for example welfare and unemployment payments: the automatic fiscal stimulus that causes the government to automatically spend more in a recession. The expected spending of welfare should be calculated averaged over an entire business cycle.

The lag could also be overridden by a super-majority.