Budget freeze
Encyclopedia
A budget freeze is a term for when a budget
for an aspect of government
or business
is fixed- or frozen- at a specific level. One can be applied in a business in order to increase profits
as well as in a government, often to reduce taxes.
Budget freezes become especially notable in difficult economic situations. In these cases, businesses can have problems acquiring funds, necessitating a reduction in spending. During times of economic or financial crisis
, the government also loses revenue
and faces pressure to lower tax burdens. This means that budget freezes may be used as a way of reducing money spent.
In government spending, budget freezes cause controversy and political debates. In the United States, Republicans
generally support freezing budgets on government-funded programs and on wages for government employees.
When a budget freeze is aimed at the amount of money spent on wages, many workers are denied benefits, bonuses, and wage increases. Governments can use budget freezes on organizations and programs that they fund. While this does decrease the budget and save money, it also takes money away from what some consider beneficial- if not necessary- government funded programs.
. In the United States, School districts have frozen teachers' pay without providing cost of living increases. These types of freezes on teachers' wages can cause strikes. Budget freezes can also increase the amount of money students need to pay for education, possibly decreasing the likelihood of attending college. While teachers oppose freezes on salaries, school districts claim that the freezes are necessary in order to continue funding other aspects of education and to keep teachers employed rather than firing employees in order to provide cost-of-living and seniority raises.
Republicans tend to approve of budget freezes for government funded programs and organizations. This is because the money that is saved through the use of these freezes can be put towards reducing taxes. Democrats, on the other hand, tend to prefer an increase in taxes over a decrease in the funds that governments provide for programs such as welfare and wages for government employees.
proposed many budget freezes in order to alleviate economic problems, including freezes on the United States Department of Education
, domestic programs such as health care, the U.S. Department of Health, and the National Science Foundation
.
also proposed a flexible freeze, which would increase budget according to inflation and population growth for certain government programs, but completely freeze others. Some viewed this as a political tactic and accused Bush and his associates of being inconsistent with the use of the term freeze. This proposal caused difficulties for Congress, especially among Democrats, as the budget cuts would force some programs to reduce contributions because of population growth and inflation and many claimed that Bush wanted to take credit for the cuts while forcing Congress to make all of the difficult decisions. When Bush did make his own priorities clear, there was a clear correlation to the freezes that Ronald Reagan
had approved.
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
for an aspect of government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
or business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
is fixed- or frozen- at a specific level. One can be applied in a business in order to increase profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
as well as in a government, often to reduce taxes.
Budget freezes become especially notable in difficult economic situations. In these cases, businesses can have problems acquiring funds, necessitating a reduction in spending. During times of economic or financial crisis
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...
, the government also loses revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
and faces pressure to lower tax burdens. This means that budget freezes may be used as a way of reducing money spent.
In government spending, budget freezes cause controversy and political debates. In the United States, Republicans
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
generally support freezing budgets on government-funded programs and on wages for government employees.
Reasons for a budget freeze
There are many different reasons for a business or a government to implement a budget freeze. In the case of a loss of profit or tax revenue, the budget may need to be cut or frozen so that a company or a government does not spend more than its intake. An excess in spending can also necessitate a budget freeze. In order to eliminate excessive spending, a budget freeze may be put in place.Government
In government, a politician may implement a budget freeze to lower the amount of money spent on programs or wages, thus allowing a decrease in taxes. Some Democrats argue that while these politicians want credit for reducing- or at least not increasing- taxes, they want nothing to do with the result of these reductions (losses in Welfare, freezes on teachers’ wages).Business
When businesses face losses or increases in prices, they can also implement budget freezes in order to fix spending and prevent further loss in profits. This is especially true during times of economic difficulty.Effects of a budget freeze
A reduction in the amount of money spent is the most obvious and intended effect of a budget freeze. But a budget freeze can have other- often unintended- consequences. When a government freezes a budget taxes can be reduced. When a budget freeze successfully lowers the amount of money that a business or government spends, the act of freezing the budget can gain positive media for saving money. Some believe that this, rather than the actual reduction in costs, is often the reason behind a budget freeze.When a budget freeze is aimed at the amount of money spent on wages, many workers are denied benefits, bonuses, and wage increases. Governments can use budget freezes on organizations and programs that they fund. While this does decrease the budget and save money, it also takes money away from what some consider beneficial- if not necessary- government funded programs.
Effects of budget freezes on education
Budget freezes and cuts can negatively influence public educationEducation
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
. In the United States, School districts have frozen teachers' pay without providing cost of living increases. These types of freezes on teachers' wages can cause strikes. Budget freezes can also increase the amount of money students need to pay for education, possibly decreasing the likelihood of attending college. While teachers oppose freezes on salaries, school districts claim that the freezes are necessary in order to continue funding other aspects of education and to keep teachers employed rather than firing employees in order to provide cost-of-living and seniority raises.
Controversy
Freezing a budget, whether for government programs, wages, or other things, affects many people. This can be both positive and negative. A budget freeze can have political implications, especially in the case of the government, but also where businesses are concerned. They can do this by affecting policy or by increasing or decreasing the approval rating for a politician.Republicans tend to approve of budget freezes for government funded programs and organizations. This is because the money that is saved through the use of these freezes can be put towards reducing taxes. Democrats, on the other hand, tend to prefer an increase in taxes over a decrease in the funds that governments provide for programs such as welfare and wages for government employees.
Budget freezes in 2009
The recent economy has caused problems in business and government, leading to budget cuts and budget freezes. Wage freezes can lead to reduced spending at the individual level, which, in turn, leads to reduced revenues for government and business. This can cause the recession to feed on itself. During his presidency, former United States President George W. BushGeorge W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
proposed many budget freezes in order to alleviate economic problems, including freezes on the United States Department of Education
United States Department of Education
The United States Department of Education, also referred to as ED or the ED for Education Department, is a Cabinet-level department of the United States government...
, domestic programs such as health care, the U.S. Department of Health, and the National Science Foundation
National Science Foundation
The National Science Foundation is a United States government agency that supports fundamental research and education in all the non-medical fields of science and engineering. Its medical counterpart is the National Institutes of Health...
.
Flexible freeze
In the late 1980s, former U.S. President George H. W. BushGeorge H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...
also proposed a flexible freeze, which would increase budget according to inflation and population growth for certain government programs, but completely freeze others. Some viewed this as a political tactic and accused Bush and his associates of being inconsistent with the use of the term freeze. This proposal caused difficulties for Congress, especially among Democrats, as the budget cuts would force some programs to reduce contributions because of population growth and inflation and many claimed that Bush wanted to take credit for the cuts while forcing Congress to make all of the difficult decisions. When Bush did make his own priorities clear, there was a clear correlation to the freezes that Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
had approved.
External links
- http://www.nature.com/nature/journal/v420/n6915/full/420452b.html
- http://www2.independenttribune.com/content/2009/apr/13/140933/state-budget-freeze-could-hurt-researchers/news-local/
- http://news.bbc.co.uk/2/hi/business/8006518.stm