Balancing the Federal Budget
The Federal government experiences several difficulties when conducting budgetary allocations and when formulating policies that effectively responds to the needs of all Americans and their diverse requirements. The occurrence of unexpected economic conditions, both domestically and internationally, prompts the government to experience budget deficits in times of recessions or surpluses during boom seasons (Auerbach, Gale and Krupkin 2). This demands the lawmakers to adjust the policies accordingly to sustain the budget allocations and economic growth. The problem of budgetary variations and balancing needs can be resolved through maintaining a balanced approach where all expenses must not surpass the income generated annually (Wray, 2019). The long-term solutions to ascertain that the budget balancing acts stay afloat must apply an agile approach that sustains a formula whereby the expenses are adjusted according to the income and does not surpass the mark to avoid the government experiencing deficits that can be transformed into a fiscal problem of the following financial year (Auerbach et al. 3).
The mandatory spending, also referred to as the entitlement spending, is protected by the authorization laws, which requires the federal government to sustain funding to key areas of social security and Medicare and Medicaid programs. In the Financial Year (FY) 2020, the mandatory spending is estimated to accumulate up to $2.841 Trillion and expected to rise to $2.966 Trillion in FY 2021 (CBO.Gov.). This constitutes one of the largest mandatory programs that require twice as much as the military spending. In the long-term, the mandatory spending has been protected under the authorization laws. This ensures continued budgetary allocation irrespective of regime change. The authorization laws demand a 60-vote majority in the Senate to make any altercation on the law, thus, enjoying the privilege of ascertained budgetary allocation.
The discretionary spending cutting across different areas requires the Congress approval on annual basis in the appropriations process. The military budget as the top discretionary spender, standing at approximately $1.5 Trillion, is crucial to the country (U.S.A. Gov.). The national security docket demands sufficient budget to ensure effective protection of the U.S. national security across the world and ensure that the military maintains higher technological advancements than any other country in the world. The solution to military spending is the capacity to maintain a par budgetary allocation with competitor nations. This ascertains that the U.S. remains the hegemony of the military powers and capabilities in the world. Thus, depending on economic performance – the U.S. should maintain a guaranteed three-point something percent of the U.S. G.D.P committed to military advancement and expenditure.
The U.S. Fiscal Policy stipulates that the U.S. deficit in the current FY 2020 stands at $1.1 Trillion with the debt held by the public constituting of $17.8 Trillion. The higher the deficit and debt on every FY, the more the U.S. budget is bound to be affected negatively (CBO.Gov.). To sustain federal government’s expenditures and spending demands – an increase in the interests would be attracted to contain the contraction effects caused by increased borrowing, loss of jobs and lower salaries. Additionally, the increase in deficits are bound to induce an increase in the debt accumulation as the government seeks alternative sources to sustain the budget. To resolve the looming problem induced by increasing deficits – the government expenditures must be in line with the income generation. The expenditures should not be allowed to surpass the income levels until the two balances effectively (Auerbach et al. 4). The debt problem should be addressed through budget cuts from discretionary areas such as cutting foreign aid, housing and urban development funding to a certain percentage to cushion and service the debt crisis. The debt should be cleared in percentages to ensure it reaches a point where it does not surpass a five to seven percent of the G.D.P. Therefore, it can be attained through introduction of a thumb-fiscal policy that sustains debt below five to seven percent of the U.S. G.D.P.
The tax reforms can be an effective approach to boost revenue generation essential to sustain the revenue generation for the country. The tax reforms should focus on relieving the taxation caps in the domestic economic operations and alter the foreign taxes (Slopek 4). The exemption from tax rates on different polices touching on trade and bilateral and multilateral agreements signed by the U.S. should be reviewed. For instance, taxes on imports should attract similar taxes as subjected to the U.S. exports in different countries. The taxation on U.S. exports to Canada, European Union, and the People’s Republic of China (PRC) should be subject to equal amount of stiff taxation and customs as accorded to U.S. products in their respective countries (Petersen et al. 3). This is critical to solve the problem of tax reforms in the long-term through adoption of protectionist policies. The protectionist policies seek to cushion the domestic economy over the foreign budgetary demands.
Auerbach, Alan J., William G. Gale, and Aaron Krupkin. “If Not Now, When? New Estimates of the Federal Budget Outlook.” The Brookings Institution (2019).
CBO.Gov. The Budget and Economic Outlook: 2020 to 2030. Congressional Budget Office, (2020), https://www.cbo.gov/publication/56073. Accessed 27 April 2020.
Petersen, Thieß, et al. “Global impact of a protectionist US trade policy.” GED Focus Paper (2017).
Slopek, U. D. (2018). Export pricing and the macroeconomic effects of US import tariffs. National Institute Economic Review, 244(1), R39-R45.
U.S.A. Gov. Budget of the U.S. Government. USA Gov., (2020), https://www.usa.gov/budget. Accessed 27 April 2020.
Wray, L. Randall. “Fiscal reform to benefit state and local governments: The modern money theory approach.” Levy Economics Institute, Working Paper 936 (2019).