Economic Policy of the United States

It’s a daunting task to create a perfect economic policy especially when you’re dealing with a superpower like the United States. All the presidents of the United States are tasked with coming up with policies that restore the global competitiveness of the United States. However, having a prosperous economy is just a dream that proves difficult to achieve. A brief look into the national debt and deficit will bring this matter to light.

The national debt and the deficit have a huge difference that is clear. First, the national debt is also commonly known as the public debt, and it refers to the cumulative amount of money that results from the borrowing of the federal government to make up for budget deficits that accrued in previous years. The deficit on the other hand usually illustrates the difference between the money the government spent in a year (usually called outlays) and what it received in the form of taxes and other revenues known as receipts. For instance, the deficit skyrocketed during the recession because the government was spending a lot to revive the economy through stimulus programs and unemployment benefits yet incomes were dropping, and it was receiving less tax revenue. However, since the recession ended, the annual deficit has declined. Nevertheless, the cumulative national debt may still spike even if the “shortfall” (which refers to the size of the deficit) decreases from one year to another. The reason for this is that the government will still be borrowing money even if it’s less than the previous amount borrowed. It may even have a budget surplus for one year but still, have a substantial national debt that has slowly accrued over time (Cohen, Patricia).

Source: https://research.stlouisfed.org/

According to the treasury department, the financial year 2017 had a deficit of $666 billion, which was 14% higher than the Financial year 2016. The government revenue for the fiscal year 2017 was a record $3.3 trillion but so was its expenditure which stood at $4 trillion (Davidson, Kate). Several reasons can be attributed to the reason why the deficit has been increasing over time. One of the main reasons including the financial crisis of 2008. The crisis significantly reduced the tax revenues including other revenues as the economy plummeted. Government receipts decreased from its record of $2.57 trillion before the recession in the 2007 Financial Year to $2.1 trillion in the 2009 Financial year. The trend was not pleasant until the Financial year 2013 when the income rose to $2.78 trillion. As a result, an economic stimulus package of a whopping $787 billion had to be added to the 2009 deficit. The package was induced to fund public works projects that would create more job opportunities. It was also used to extend unemployment benefits and cut taxes. The whole was done in a bid to bail out the economy from recession, which was achieved in the second quarter of 2009.

The second factor is mandatory and military spending. The war on terror after the September 11 attacks forced the United States government to double annual military spending. When the war began in 2003, the United States expenditure on the military was $437.4 billion. By 2011, the military spending was at $855.1 billion. Mandatory spending has also increased the deficit. These include payouts for mandated programs including Medicare, Medicaid, and Social Security among others. Since the Financial Year 2011, this expenditure has been an excess of $ 2 trillion which signifies how they consume a significant portion of the revenue annually. Unfortunately, only the Congress can amend such benefits of these programs. The act would need an almost impossible majority vote from both houses. The current beneficiaries are not willing to incur “loses” if the benefits are reduced (Hart-Landsberg, Marty).

Third, health care spending is growing fast. In fact, this sector of the US government expenditure is reported to be the fastest growing. The trend in health care spending is not different even in the private sector. The control over costs in the US is not taken seriously like the European healthcare systems because their principles of payments are disparate. Nevertheless, the deficit for the fiscal year 2018 has significantly reduced to $440 billion. The shortfall arose since the government revenue of $3.654 trillion was less than the government spending of $4.094 trillion.

America boasts of the most powerful economy in the world, and therefore, its economic policymakers have an uphill task. Being the engine of economic growth in any part of the universe, a healthy US economy means that there will be an improvement in the quality of life of billions of individuals across the globe. However, the US has its significant share of trouble in maintaining a healthy economy. The national debt is currently over $20 trillion, and the deficit is still enormous. The government spending should be curtailed to minimize the deficit.

As of September 2018, the US national debt was an excess of $20 trillion. The most logical solution to dealing with public debt is decreasing government spending significantly and hike taxes to an equal amount ("Getting America Out Of Debt | National Debt Solutions") . Each of these two options will minimize the deficit equally which is an advantage. However, both have different impacts on job creation and economic growth. For instance, increasing income tax will reduce job creation and decrease demand because consumers do not have money. Keeping in mind that 70 percent of economic growth is determined by consumer spending, this would be hurting the economy. Reduced spending will mean fewer government funds are being pumped into the economy. On the other hand, decreasing government spending on education, infrastructure, and basic scientific research would decrease the future productivity of the country (Romer, Christina).

Americans have seen the devastating economic effects of bad economic policies and there looking to support the current government into having favorable economic policies. The best example is that polls are indicating most Americans understand if they have to incur higher taxes to rebuild their tarnished economy.