golden rule

What It Is

The golden rule is very simple: treat people the way you want to be treated. In the business world, it also refers to fundamental principles of government spending: cover current spending with existing taxes and borrow only to fund investments that benefit more than on generation of citizens.

How It Works

A common principle in all of the world's great religions, the golden rule shows itself in every facet of the business world. It is the essence of what many call square dealing.

From a fiscal policy perspective, a government follows the golden rule when its tax revenues for the current year equal or exceed its day-to-day spending for the current year. Borrowing is allowed, but only for investments such as infrastructure projects, research projects, or other projects that benefit future generations.

Why It Matters

The golden rule is the fundamental policy behind many balanced budget amendment plans in the United States. Though the nation's history contains several attempts at implementing the golden rule, some critics argue that the idea also means that during recessions, when tax revenues are down, the government must cut public services when citizens might need them most.

Source: Investing Answers