Pros And Cons Of Budget Deficit

Deficit spending refers to government spending that exceeds federal income and taxes over a period of time. The government can increase borrowing to obtain money from taxes or from foreign governments. The money that is borrowed is then put back into the economy through government spending. While deficit spending will increase government debt, it is believed to stimulate the economy to end a recession. Deficit spending has several advantages and disadvantages to government borrowing.

A fiscal deficit is when a government's total expenditures exceed the tax revenues that it generates. A budget deficit can be cut by either reducing public expenditure or raising taxes. In this essay, I am going to analyse the benefits and costs of increasing tax rates to reduce fiscal deficits instead of cutting government expenditure.

An indication of the overall impact of fiscal policy (FP) on the state of the economy is the fiscal outcome. The three possible outcomes include a fiscal surplus (positive balance where government expenditure exceeds revenue), fiscal deficit (a negative balance where government revenue exceeds expenditure), and fiscal balance (a zero balance where total government revenue equals expenditure). The main aim of fiscal policy is to achieve fiscal balance, on average, over the course of the economic cycle. The Howard Government targeted a fiscal surplus of 1% of GDP, whereas the current Rudd Government has raised this target to 1.5% of GDP,

Deficit spending refers to the extent at which the government expenditure exceeds revenue over the financial period. This is the opposite of budget surplus. We may apply the term to an individual, private company or government budget (Brux, 2011).

Answer: If there is a difference in the spending of government and the in income will lead to the deficits. More over deficits occurs when the amount of government total budget exceeds its total receipt for a fiscal year was said by US senate budget committee. From the US debit clock, largest budget items list are medical, social security, defense/war, income security, net interest on debt, federal pensions. As we can see that the largest budget items every item has its own importance for Medicare the budget is $949 billions, social security is $872 billions, defense is $591 billion, income security is $310 billions, net interest on debt is $245 billion, and federal pensions is $253 billion. A cut back in the spending of the government is not an easy task because which lead to so many issues. Every items has got his own importance consider defense which is a national importance, medical which is health importance, likewise every items has got their own importance. I would recommend cut back on income security in which the budget is allotted to maintain forester care, earned income credit, unemployment compensation, nutrition assistance, family support, making work pay this is meant for the citizens of the social welfare.

The federal budget deficit is a much discussed and little understood subject in American politics. The current recession has dramatically decreased tax revenues, driving the United States federal government to increase spending in an attempt to stabilize the economy. As a result the current federal deficit is at over $1.3 trillion dollars. This is approximately $47,754 per U.S. citizen or $137,552 per U. S. taxpayer (U.S. Debt Clock: Real Time, 2012).

Deficit financing is the amount of government spending compared to tax revenues. If the government spends more money than it generates then the government is in a public sector deficit and the country is in debt. This means that the government will decrease spending on public services and increase taxes to try to repay their debt.

Taxation, the amount of money we pay every year and of course the government is a big spender has a lot of assets at its disposal to influence the economy. The government is a very large entity and controls a lot of money. Fiscal policy is more effective when trying to stimulate the economic growth rather than trying to slow down an economy that is overheating. The goal of fiscal policy is too accomplished by decreasing aggregate expenditures and aggregate demand through a decrease in government spending. Fiscal policy pros are; it can build up the operation electronic stabilizers. Well-timed fiscal stabilization together with automatic stabilizers can have an impact on the level of aggregate expenditure and activity in the economy. Fiscal policy can be picky by attempting specific category of the economy. For example, the government can be focused to concentrate education, housing, health or any specific industry area. Fiscal policy controls a spending tap. Fiscal policy can have a forceful effect if used in bankruptcy, because the government can open a spending tap to increase the level of aggregate

The federal budget is known as the notorious economic tank from which money is distributed to various programs. The money used every fiscal year, which begins October 1st and ends September 30th the next year, belongs to the people. The government raises this money through taxes and they spend it on national defense, Medicare, and social security. The federal budget is an exercise in making choices, and those options will certainly affect individuals living in the U.S. These choices cause debt to pile up on the government, who is struggling to make it disappear. The deficit and debt of a government gauges how well it is being run and how well it has been run in the past. According to The Economist the national debt is the total

When a surplus exists, the government has extra funds to spare and infuse into the economy. This surplus will increase government programs. When the

If the government spends a dollar on bread and then a baker uses part of that dollar to buy flour. The flour distributor uses part of that to pay the truckers. Then the original dollar of the government spending becomes in effect more than a dollar. In practice the multiplier for government spending is not very large [1]. With each dollar of government spending the GDP increases by only 1.4 dollars [1]. Government spending and taxes are not separate issues. The government can only pay off its debt and expenditures by increasing the taxes. A study [2] suggests that "an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent", a phenomenon likely caused by the fact that "investment falls sharply in response to exogenous tax increases" [2]. Thus, what seems to be a course out of recession may actually be a road into another one.

The budget deficit, although it is also used to refer to when expenses exceed income does not necessarily mean you have losses, but it can also mean lower income because expenses have been higher than expected. Public debt basically represents the money the government borrows to cover the budget deficit.

When a government’s spending exceeds its revenues causing or deepening a deficit it is called deficit spending. Deficit spending is only one of numerous tools used to help manage the economy. Deficit spending is presumed to stimulate consumer demand by helping the consumer to obtain more money to spend, in turn, the demand of product will rise. There are advantages and disadvantages to deficit spending that we will discuss further below.

As long as the deficit is in proportion to GDP or Gross Domestic Product, the sum of a country’s goods and services, there is no significant fiscal risk to the economy. However there is a counter-argument that government deficits do matter. The argument is that if interest rates were to go up even a quarter point then that would lead to the need to take out even more debt to pay off previous interest payments. This would lead to the need to decide whether to decrease current spending on other programs such as healthcare or infrastructure to compensate for the new interest payments, or to maintain current spending and simply borrow more debt without attempting to curtail spending.Following the first would hurt economic growth and increase inequality, but following the latter would lead to the debt climbing higher at an increasingly fast rate that would risk causing massive inflation. Both sides make valid points.

Throughout most of the country’s history, the United States’ federal government maintained a reasonable level of national debt. For example, the total national debt in 1981 was $998 billion. Since then, however, the government has generated significant budget deficits, and the level of debt has risen to $16.7 trillion in 2013 (Calleo, 39). Budget deficits are caused