ECO372 Fiscal Policy Paper Team B.doc
ECO372 Fiscal Policy Paper Team B.doc PRG211
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Date Created: 11/11/15
Fiscal Policy Paper 1 Fiscal Policy Paper Sandra D. Burnette, and Manuel Munoz ECO/372 June 16, 2014 Dr. Gibran Rezavi Fiscal Policy Paper 2 Fiscal Policy Paper In this paper, Team B will discuss how and why the US’s deficit has an effect on future Social Security and Medicare users, and taxpayers. The team will also discuss how and why a surplus in the US’s budget has an effect on future Social Security and Medicare users, and taxpayers. Finally in this paper, Team B will discuss how and why the US’s debt has an effect on future Social Security and Medicare users, and taxpayers. The US’s deficit is the amount by which the US federal government’s spending exceeds its revenues on an annual basis. The federal government’s revenue comes mostly from taxes. According to Williams (2011), 9 percent of the federal government’s revenue in 2010 came from taxes. Since 1950, income tax in the US has been the largest contributor to federal revenue. In order to decrease or eliminate the deficit annually, federal revenue must increase revenue. In order to increase revenue, the federal government implements policies for higher taxes. The effect the federal deficit has on taxpayers is that the larger the deficit, the higher taxes are increased because taxes make up a majority of federal income. A surplus in the US would be opposite to its deficit. A surplus is the amount by which federal income exceeds its spending. According to Investopedia US (2014), since 1950 the federal government has seen a surplus only a few times. The most recent surplus occurred in the late nineties and was created by the Clinton administration. A surplus means increased federal revenue. In turn, the federal government does not implement higher taxes and may lower taxes during a surplus. The federal government may use its surplus to make purchases, pay its debt, or save it for the economy’s future. The effect a surplus has on taxpayers is no increase or decrease in taxes. The federal government would not need to increase its revenue with increased taxes because the federal government would not need to increase its revenue. Fiscal Policy Paper 3 The US debt is the federal government’s total amount of borrowings from organizations owning US debt securities, other businesses, other governments, and individuals. It is inclusive of the federal deficit. The more the debt increases, the more necessity for the federal government to increase taxes. An increase in taxes would result in an increase in federal revenue. Once federal revenue exceeds its spending, creating a surplus, the government can begin paying off some of its debt. A deficit in government budgets and spending throws everything off, especially in the future. The current debt is in the trillions of dollars and adding to it with social security and Medicare benefits the deficit surpasses the current debt over three times the amount. Considering the Federal Government is responsible for these programs, their ability to fund and regulate such programs is at risk. One big issue nobody took in consideration was people living much longer than anyone anticipated thus more money spent to help aid those individuals. An entire generation of baby boomers living 10 or more years past the age of retirement forces the government to use funds from current payers and jeopardizes an entire future generation. During the economic disaster back when the financial crisis took place, the United States government explored all sorts of possibilities to find financial stability and balance the economy. President Obama’s administration worked hard to devise a plan for the economy, but nowhere in his agenda mentions anything about programs such as social security and Medicare. Unless the economy stabilizes and our government can turn around the deficit and make it a surplus, chances are these issues are not going to be addressed in the near future, which is a danger to these programs. The Congressional Budget Office predicts that spending as a percentage of gross domestic product for entitlement programs such as Medicare and Social Security will grow much faster than defense. Defense spending will also grow, but at a far slower rate (Rubio, Fiscal Policy Paper 4 2013). Although this may not be entirely accurate, most economists agree these programs combined account for a large piece of spending because their structure is unsustainable. In conclusion, the Federal Government must not ignore the programs, which help the people who actually need it most and worked hard for many years to earn that privilege. Just as veterans earn their keep, so do hard working people who paid in for many years. Nobody wants to pay in a program who they know has no future and is in trouble. The next President will need to focus on these issues before they become a problem to our country and our economy. Fiscal Policy Paper 5 References Rubio, M. (2013). Medicare and Social Security not defense are driving debt, says Marco Rubio. Retrieved from http://www.politifact.com/florida/statements/2013/nov/22/marco rubio/medicareandsocialsecuritynotdefensearedrivi/ Investopedia US (2014). Budget Surplus. Retrieved July 13, 2014 from , IAC/InterActiveCorp Web site http://www.taxpolicycenter.org/briefing book/background/numbers/revenue.cfm Williams, R. (2011, September 13). The Numbers: What are the federal government’s sources of revenue?. Retrieved July 13, 2014 from , Urban Institute and Brookings Institution Web site: http://www.taxpolicycenter.org/briefing book/background/numbers/revenue.cfm
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