Response To Discussion On Federal Budget Deficit

RESPOND TO THE FOLLOWING DISCUSSION QUESTIONS:

DISCUSSION 1:

Budget Deficit is the excess spending over the revenue of the government which leads to accumulation of public sector debt. There are various areas where it is mandatory for the government to spend its revenue while other areas are necessary but do need toneed excessive spending. The Federal government can minimize budget deficit by collecting more than it can spend which is unlikely in the present political atmosphere. However, the government needs to differentiate between mandatory areas and essential areas of spending (Amadeo, 2013).

Investment in space science could be a waste of money and resources since the efforts to explore the moon ceased after the discovery that Russia had no global advantage of such spending. Furthermore, the spending on space science does not benefit the country’s economy as well as taxpayers (Bowles, 2014).Cutting spending on general science, space and technology by 20% will allow the federal government to allow the federal government to direct their funds in veteran service. The government also needs to cut down the spending in the admissionof justice and general government by 20%. Such reductions of the budget will minimizeexcessive use of federal resources by government officials.

According to Bowles (2012),the federalbudget deficit could be the gravest threat to national security. The solution needs some economic growth through simplification of the tax codes, widening the tax base and avoiding back-door investments of tax breaks. Obama’s government made a mistake by focusing on cutting Medicaid and various changes in socialsecurity like a new formulafor determining benefits and a higher retirement age. The decision would eventually lead to a federalbudget deficit due to misplacement of funds.

On the other hand,the government needs to increase their spending on Veteranservices by 2.5%. The move will help improve the lives of military officers upon discharge from active military services due to disability or permanentinjuries. Also, there is a needto cut the budget for the healthcare cost. According to Bowles (2012),the rate of growth of healthcare cost need be at 1% on a maximal level. However, the current figures seem to be in excess regarding the GDP growth. The government can cut healthcarecosts by 10% through the developmentof mandatorysavings to replace the Affordable Care Act and addressing the high medical prices.

According to Bai (2012),it is either MrObama embraces the painful cuts in social security or Medicarebenefits or contemplateson raising taxes. Both Obama and Boehner clung to their separate ideologies of improving budget deficit with each part reluctantto discuss on the common stand for the well-being of the country’s economy. Obama and Boehner had entered an agreement of re-writing the tax codes, roll back tax of the cost of entitlementand slash the deficit. However, the two clashed after Obama receivingpressure from the Democratsand he immediately demanded the republican to accedeto hundredsof billionsof additional tax revenue (Bai, 2012).

The president’s federal budget is more of a no profit generation hence leading to a budgetdeficit. Most areas of the budget needed cutting with the aim of keeping it below $1,100B deficit. Iwas able to come up with a $1089.3B deficit through cutting various budgets across the board. The new deficitincluded a reduction of international affairs, general science and technology, energy transport and regional development by 20%. Also, the health sector and income security werereduced by 10%.

Due to the government’s increased spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs and reduced revenues, in 2015 the nation’s deficit fell to $439 billion with $3.25 trillion of revenue and $3.69 trillion of spending.

References

Amadeo, K. (2013). How the 2012 Budget Created the 2011 Debt Ceiling Crisis. Retrieved from https://www.thebalance.com/fy-2012-u-s-federal-bud…

Bai, M. (2012, March 28). Obama vs. Boehner: Who Killed the Debt Deal? Retrieved from https://www.nytimes.com/2012/04/01/magazine/obama-vs-boehner-who-killed-the-debt-deal.html?pagewanted=all (Links to an external site.)

Bowles, E. (2014, August 01). The Danger of Doing Nothing. Retrieved from https://hbr.org/2012/03/the-danger-of-doing-nothing

DISCUSSION 2:

Using the National Budget Simulation and taking into account that the United States is subject to security concerns, there is a lingering recession and a financial market rescue package is forcing the government to increase spending. I increased international affairs, community and regional development; education, training, employment, social services, and general government all by 5%. This left total spending at $3714 billion, and total revenues at $2450.2 billion. Leaving a new budget deficit of -$1263.8 billion.

In order for the President to keep his campaign promise of keep the budget deficit below $1100 billion, and still being able to cope with the security concerns and lingering recession, I chose to cut spending, and increase taxes. This is an example of contractionary fiscal policy. “Contractionary fiscal policy is implemented through decreases in government expenditures and/or increases in taxes to achieve macroeconomic goals” (Arnold, 2019). To reach the desired budget deficit it would be difficult to reach with only budget cuts or increased taxes alone, in this situation I think it would be best to use both budget cuts and increased taxes to reach a budget deficit of $1100 billion. “We also can’t solve the problem just by raising taxes. That wouldn’t address the fact that demographics have changed and health care costs are increasing at a much faster rate than GDP. And we can’t solve it entirely with cuts” (Bowles, 2014).

General Science, space, and technology were decreased by 15%. Energy was decreased by 7.5%. Natural resources and environment were decreased by 7.5%. Agriculture, transportation, health, and income security were all decreased by 5%. Veterans benefits and services were decreased by 10%. Administration of justice was decreased by 15%. These budget cuts brought the budget deficit to 1154.24, and increased taxes would have to be put in place to get the budget deficit to $1100 billion. Individual income tax would increase from 1132.2 to 1172.2 and Corporate income taxes would increase from 242.3 to 262.3. This increase in taxes would bring the total revenues up from 2450.2 to 2510.2. The new budget deficit with the budget cuts and the increased taxes would be $1094.2475 billion. Reducing government spending and increasing taxes would help to get the economy out of a recessionary gap by shifting the long run aggregate supply curve to the left, bringing the economy back into equilibrium. Since the government spending is being reduced and the budget deficit is also reduced. The government can borrow less money, leading to lower interest rates.

References:

Arnold, R. A. (2019). Economics (12th ed.). Cengage.

Bowles, E. (2014, August 01). The Danger of Doing Nothing. Retrieved February 19, 2019, from https://hbr.org/2012/03/the-danger-of-doing-nothin…

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