If the federal government had to operate under the same fiscal rule North Carolina has to follow — and it should — then its operating revenues would have to equal its operating expenses.

Notice that I didn’t say Washington couldn’t issue any debt under this scenario. Balanced-budget requirements don’t work that way. State and local governments routinely borrow money. Unlike their federal counterparts, however, states and localities can’t generally run deficits in their operating budgets. They’re only allowed to borrow money to finance capital investment.

Here’s a simple way to illustrate the distinction. North Carolina governments can and do borrow money to build schools, roads and water systems. But they can’t use debt to pay schoolteachers, state troopers, or maintenance technicians. The latter expenses show up in the operating budget, appropriately paid for with taxes and other operating revenues.

Because I write often about the fiscal recklessness of Washington politicians and the need for a balanced-budget amendment to the federal constitution, I get lots of complaints from readers who say it’s impractical to eliminate federal debt instruments entirely — and foolish even to try. I agree! That’s not what a reasonable balanced-budget amendment would do.

If federal budgeting worked like state budgeting, Congress could in fact authorize debt-funded expenditures on federal office buildings and military bases, infrastructure and capital improvements on federal lands, and the purchase of durable federal assets such as aircraft carriers.

It would wise to do so, at least some of the time. Everything else being equal, interest costs make borrowing more expensive than paying cash. But everything else isn’t always equal. If construction costs are increasing rapidly, for example, it can make sense to borrow and purchase needed assets immediately rather than waiting to save up enough money. More importantly, because the benefits of long-lasting assets accrue to future as well as current taxpayers, it can make sense to require those future taxpayers to help shoulder the cost through the use of long-term debt.

What might such a fiscal strategy look like in practice? We have no need to guess. In its latest budget plan, the Biden administration devoted an entire section to federal investment. Its proposed 2023-24 budget contained $436 billion in expenditures on physical capital, including both direct federal spending as well as grants to states and localities for roads and other infrastructure.

In the same budget, the Biden administration proposed $6.88 trillion in outlays and $5.04 trillion in receipts. That deficit of $1.84 trillion represents roughly 27% of total expenditures, or nearly 7% of the nation’s gross domestic product.

Now, imagine the federal government were run like North Carolina. If it maximized its debt capacity and borrowed $436 billion — because it could use debt only to finance public assets — the deficit would represent about 6% of the budget and less than 2% of GDP. Big difference!

A fiscally responsible Congress and White House wouldn’t max out its debt capacity, though, just as North Carolina uses a mixture of bonds and cash to fund annual investment rather than relying on debt alone. And given the hole politicians of both parties have dug for us, they really ought to run some surpluses to help repair Washington’s balance sheet. Still, if deficits stayed below 2% of GDP and the economy kept growing, that would help immensely.

Yes, I know this isn’t the whole story. To bring borrowing down below 2% of GDP would require real budget savings — eliminating some programs and means-testing others.

Also, some might argue that federal expenditures for such purposes as education and training are themselves a form of capital investment. True, but there’s a crucial difference. Government roads, buildings, and other infrastructure are public assets. Human capital — the knowledge, skills, and relationships that education helps to cultivate — isn’t a public asset. It’s private. The government doesn’t own us. We own ourselves.

Making the federal budget more like a state budget is no panacea. But it makes perfect sense. Does that make it politically unthinkable?

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.