The Pros And Cons Of Deficit Spending

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.

Deficit spending is often applied in a political context. However, it can be applied in

Many contend that deficit reduction is imperative to our prosperity and economic recovery. The deficit is blamed for a variety of economic ills including high interest rates, unemployment, the trade deficit, the low rate of national saving and low productivity growth (Shaviro, 1997).

The United States is spending huge amounts of money on military defense when there are other problem areas in our society that are in need of more funding.

The underlying truth of deficit spending is the same whether it is used in finance, economics or government that the more is spent, the less income is made (Buzzle, 2014). Many economists argue that deficit spending will hinder economic growth while others disagree. Deficit spending has been the topic of debate for a very long time. Deficit spending is “when government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect of raising interest rates” (Investopedia, 2013). In simpler terms, deficit spending is when a governing body of a nation needs to borrow money from other nations due to the nation being in a recession. Governments borrowed against future revenues so that they are able to finance domestic welfare spending before the twentieth

The federal budget deficit is where government spends more than it receives. This deficit is financed either through borrowing or issuing money. The U.S. Treasury has borrowed trillions of dollars to rescue the financial system. When compared to other countries the sum of money is greater than what other countries borrow. Questions like who holds most of our debt and where is most of the money spent will be answered in this essay.

Ever since WW2, the US government has spent a significant portion of its GDP on military funding. Many citizens think that the government should spend less on military but, a few think they should spend more. While it seems like a simple question, answer is a lot more complicated than it initially looks. The United States is the supreme world power, at a cost though. That cost is nearly 600 billion dollars. (National Priorities). However, other nations, mainly China and Russia, have increased their military power which makes some people nervous about what the US government is doing about it. For the most part, the US government has kept its military budget the same for the past decade. While

The national debt has always been a major issue in and for the United States. In the past the nation was faced with this deficit as they were required to borrow money from foreign nations and its citizens as the government needed money to build up its empire. The nation obtained money from its citizens in the form of bonds which the government promised to pay back. Distrust accumulated when the government was unable to pay these bonds back. When Alexander Hamilton was appointed Secretary of the Treasury, he composed a resolution to the debt issue. This resolution, according to our textbook was to develop a more commercial/industrial economy as opposed to the agricultural based economy that was prevalent at the time. Hamilton viewed the debt as an asset. To further elaborate on Hamilton’s plan; he decided to fund debts by selling bonds which paid annual interest to holders, in order to pay these bonds Hamilton also proposed new tariffs and excise taxes. Hamilton’s plan would benefit the economy in 3 essential ways, by establishing a sense of economic credibility, earning support from wealthy citizens which would aid stability issues and benefit the nation as a whole in the future, and entice investors; similar to buying support from wealthy citizens would aid the nation as investors could build/fund utilities and resources for the nation. Hamilton’s plan would also redistribute wealth from farmers to merchants and from the South to the North. Naturally, Hamilton’s plan was

The U.S government is spend way too much money. One of the biggest problems the facing the U.S in the increase in the budget deficit. The increase in the budget will affect future generation. There are many solution to fixing the problem. On October 17 the United States debt was over $17 trillion dollars, which is more than the United States annual economic output. The only time the GDP was that high when we were in World War two.

Budget cuts are not a one-time harm, they will continue to hurt students as they pursue higher education. Funding is not just an issue among public schooling at the K-12 level, it is also an issue many universities are facing. States are no longer giving colleges and universities the funding they once had. Kathryn McNutt asserts that the severe funding cuts are only beginning at the K-12 level and will expand further into the collegiate level. McNutt states, “Sanders said state funding provides less than 8 percent of the OU Health Sciences Center’s $1 billion budget and less than 6 percent of the College of Medicine’s budget.” Due to the lack of state funding colleges are looking for other types of sponsorship and if none can be found they may have to cut some of their programs. Colleges are at risk of losing popular programs at their schools which would cause a decrease within their enrollment. Students are also at risk when faced with the possible loss of programs. Students enrolled in a program that gets cut have no compensation, this would put students as well as the college in a very bad position both financially and legally.

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.

To increase economy growth and considered a real expenditure by the federal government a purchase component of aggregate demand by government agencies for goods and services which are a direct production transaction (Kotler, Bowen, & Makens, 2013). For example, public universities, college educational research services, transportation and infrastructure. They can be a long -term benefit because they produced productivity. In 2009, President Obama made a statement that the package would create spending by businesses and consumers making the investment a long-term economic growth. (2013, p.287). For instance, in the past President Roosevelt recession addressed the issue of unemployment with his New Deal program, even though he wanted to avoid a budget deficit. When such spending directed into the economy, in turn, can generate income for taxes and interest example, college student loans. Employment circulates money in the market, and there will be an increase in production from private sectors and consumer

A budget deficit is a shortfall of tax revenue from government spending. A budget deficit is an indicator of financial health in which expenditures exceed revenue. The term budget deficit is most commonly used to refer to government spending rather than business or individual spending, but can be applied to these entities. When referring to accrued federal government deficits, the deficits are referred to as the national debt. A budget deficit is recognized, current expenses exceed the amount of income being received through standard operations. To correct a budget deficit, the nation may need to cut back on certain expenses or increase revenue-generating activities, or employ a

Government funding to the military needs to be cut in order to have more money available for programs such as: infrastructure, education and health care.

When the economy is booming and actually growing faster than the national debt then the government will be able to pay all the interest payments on the debt. Being able to pay on the national debt is a good thing, but completely paying it off is not necessary or wise. Many politicians call for a balanced budget amendment, but in actuality such an amendment could cause more harm than good because extreme spending cuts would be necessary. The reason paying off the debt is not completely necessary is because “If taxes were raised across the board to pay down the debt, those who did not own any public debt would be in a worse position than those who did” (Chiang, 2014 p. 567). The government would not have to necessarily raise taxes to pay down