ECO203 Assignment Week 3 Efforts to Reduce the Budget Deficit

Ashford University: ECO 203-Principles of Macroeconomics

Instructor

5/1/2016

Introduction

Over the course of American history, the national debt has substantially increased due to the government overspending each year putting a whopping $500 million dollars on the national debt each year from 1980 to 1993 (Amacher, R., Pate, J., 2012). With numerous tax relief and tax reconciliation programs enacted by President Reagan, President Bush and President Obama, politicians have begun to realize the rate at which the national debt is growing. There are numerous ways that the government can improve their efforts to reduce the budget deficit, which includes things like controlling spending, keeping a balanced budget in place and cutting unnecessary government spending on things such as providing funding to fuel wars.

According to the text, “The rapid growth of the national debt alarmed some politicians and created pressure for restricting Congress’ unlimited ability to spend.  After many years of talk about a balanced budget amendment to the Constitution, which would require a balanced budget on an annual basis, Congress passed the Gramm-Rudman-Hollins Act of 1985.” (Amacher, R., Pate, J., 2012) This act basically put a timeline on reducing the nation’s debt from the $200 billion dollars it was in 1986 to zero in 1990. Unfortunately, to this day, the debt ceiling keeps getting increasing and the government continues to spend uncontrollably at the expense of the American tax payers. According to the article, The Effect of Government Spending on Economic Growth, “There has been an ongoing concern that large and growing governments have deleterious effects on the long-run growth of their economies. The usual policy prescription calls for a scaling back of government activity and budgets, constraining public spending from growing faster than output.” (Christie, T., 2012)

There were several reasons as to why the budget deficit has not decreased over time. Some of the reasons include the recession between 1980 and 1982, high interest rates, failing to control the growth of income transfers when it came to Social Security and Medicare, and cutting taxes while increasing spending on defenses. Interest rates remained high during the year of 1980, however, during the late 80’s interest rates began to fall. Because of the fact that the government couldn’t simply stick to a budget or to control their own spending, they put the American economy in a bad place. Because of the uncontrollable spending habits of the government, it may be troublesome for the baby boomers, those born between 1946 and 1964, to retire with Social Security.

The government, to no avail, has tried numerous things to try and decrease the budget deficit. However, history has only shown an increase in the budget deficit. With all the turmoil that happened between 1980-2012, including the Great Depression, World War II, September 11th attacks and the housing market crash of 2008, the economy struggled to make a comeback. Many banks and auto companies and such were in a financial crisis at the end of 2009. According to the text, “The U.S. government responded by passing a previously unheard of $700 billion bank bailout measure as well as a $787 billion fiscal stimulus package. The American Recovery and Reinvestment Act of 2009 was intended to save and create jobs immediately, as well as provide relief for those most affected by the recession. It also proposed to invest in the country’s infrastructure, education, health and green energy.” (Amacher, R., Pate, J., 2012) So the government definitely took steps to improve the economy as well as the nation’s budget deficit. Other measures taken include President Bush making an agreement with Congress in 1990 to impose tax increases and caps on spending.

The Omnibus Budget Reconciliation Act was passed in 1990 to revise the budget control process of the government in hopes of reducing the nation’s debt. In 2011, Treasury Secretary Timothy Geithner informed Congress that the nation’s debt was approaching $14.294 trillion, which then led Democrats, Republicans and the Tea Party on a long debate about the nation’s debt. The debt-ceiling crisis last a few months only to end with President Obama and the current Speaker of the House John Boehner coming to an agreement. According to the text, “The U.S. debt-ceiling crisis finally ended on July 31, 2011, when President Obama and Speaker of the House John Boehner reached an agreement. Signed into law on August 2, 2011, the Budget

Control Act of 2011 immediately increased the debt limit by $400 billion. The bill also specified $917 billion in spending cuts over 10 years, among other proposals to further reduce government spending.” (Amacher, R., Pate, J., 2012)

Conclusion

In conclusion, the government has a long way to go when it comes to reducing the nation’s budget deficit. With numerous tax relief and tax reconciliation programs enacted by President Reagan, President Bush and President Obama, politicians have begun to realize the rate at which the national debt is growing. There are numerous ways that the government can improve their efforts to reduce the budget deficit, which includes things like controlling spending, keeping a balanced budget in place and cutting unnecessary government spending on things such as providing funding to fuel wars. With controlled spending, tax relief programs and overall budgeting enacted into the Constitution, the government will be well on their way to providing a lower budget deficit.

According to WhiteHouse.gov , in a 2017 overview, “The President’s Budget continues that approach, investing in America’s future and laying out a path to address our greatest challenges. It builds on the bipartisan budget agreement secured last fall, adhering to the discretionary levels provided for 2017, while also putting forward paid-for mandatory investments that are critical to building durable economic growth in the future and maintaining America’s edge as the leader in innovation and cutting-edge science. The Budget proposes a number of reforms – including a detailed international tax reform plan – that would modernize the business tax code to make it fairer and more efficient, and to create jobs. The Budget also finishes the job the past two bipartisan agreements started by preventing the return of harmful sequestration funding levels in 2018 and beyond, replacing the savings by closing tax loopholes and reforming tax expenditures, and with smart spending reforms.” (WhiteHouse.Gov ) Therefore, President Obama is making sure that the economy is on its way to being repaired an paving the way for a brighter economic future.

References

Amacher, R., Pate, J., (2012). Principles of Macroeconomics. San Diego, California:

Bridgepoint Education, Inc.

Christie, T. (2012). The Effect Of Government Spending On Economic Growth: Testing

The Non-Linear Hypothesis. Bulletin of Economic Research, 66(2), 183-204. doi:10.1111/j.14678586.2012.00438.x

Fiscal Year 2017 Budget Overview. (n.d.). Retrieved May 01, 2016, from https://www.whitehouse.gov/omb/overview

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