Public Budgeting System, Term Paper Example

Introduction

A budget deficit is the quantity by which total government spending is more than government income during a specified period; the amount of money which the government needs to raise by borrowing to be able to make up for the shortfall in tax revenues. Federal debt denotes the total sum of the outstanding debt obligations of a country’s central government. The Gross Domestic Product (GDP) is an estimation of the total money value of the entire final goods and services generated in a given one-year time period using the factors of production located within a specific country’s borders. “The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009” (Congressional Budget Office (CBO), 2014, pg.1).

Managing budget deficits has been a primary technique for stimulating economies that have high joblessness rates. The definition was necessary to provide some commentary, ideas, and thoughts concerning the Public Budget Systems budget deficits and surpluses. The GDP average growth rate in 1990 increase by 6.9% which led to an increase by 19.2 in 2000, which strength the economy (Su, 2001, pg.8). The best example of a budget is the same as a personal budget or a business budget that is responsible for keeping the organization in the green not red. In contrast, the United States federal government uses tax payer’s funds for its daily operations for income and expenses. The government takes all these expenditures with the intent to create a national surplus. The presidential leaders claim we need to spend money on wars, national defense, social programs, and other various programs that contribute to the deficit. The bottom line is the government continues to borrow against the tax payers funds even when the deficit is in the millions in red. “The current debt limit is $16.699 trillion. The Treasury Department can borrow that much and not a penny more, unless Congress votes to raise the ceiling” (Plumer, 2013).They continue to adjust recessions, market crashes, or reactions to a down economy which sends the deficit out of control. In addition, each President has contributed to the deficit from years ago, therefore the battle to make sure the federal deficit can reach a surplus is very difficult and complex. “The 1990s resulted in a budget surplus in 1998 for the first time since 1969, an unemployment rate of 4.0 percent in 2000, the lowest in the past three decades” (Su, 2001, pg.4). What we do understand that government will not stop spending. “At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years” (Congressional Budget Office(CBO),2014,pg.1)

The federal government operates at a deficit simply because it is unable or unwilling to collect an adequate amount of taxes within any given calendar year to handle its expenses. For most of its background, the United States balanced its budget excluding in war time. The Senate has not been accountable to balancing the budget because the individual accomplishments are overriding the overall best decision or the American people. The Senate deadlocks that left millions without unemployment emergency benefits is a slap in the face of the American people. (Krane, 2014). After the war, the federal government ran surpluses to reduce the debt accumulated throughout the war or ran deficits much less than the growth of the Gross Domestic Product (GDP).The United States political systems at the national and state level has not been able to control the government’s deficit because of unrestrained borrowing by the federal government. In addition, they have not put checks and balances in place to replace the money borrowed. “The Commerce Department said the deficit on the trade balance increased 7.7 percent to $42.3 billion, the largest since September last year. The inflation-adjusted gap widened to $50.1 billion from $48.5 billion in January” (Mutikani, 2014).

The U .S. Treasury has borrowed over a trillions of dollars over the past two decades because of federal government not following protocols on government borrowing , borrowing authority out of control , by investing in foreign investments, two long wars, bail out the United States financial system , and economic stimulus (Wilson, 2011). The country’s ability to borrow is restricted by statute, however, the federal government arrived at its borrowing capacity in May 2013, and, in the absence of new borrowing power from Congress, Treasury is taking amazing measures to meet its obligations. The United States is undoubtedly able to raise its debt limit in a timely fashion, and many economists claim that a failure to do so in late. Nevertheless, this is an excellent example of the government allowing the borrowing authority to reach this point.

Federal Deficit

A financial budget deficit is the quantity by which total government spending may be more compared to government income during a certain time period ; the amount of money which the government needs to raise by borrowing to be able to make up for the shortfall in tax revenues . Federal debt illustrates the total sum of the outstanding debt responsibilities of a country’s main government. GDP is an estimation of the total money value of the entire final goods and services generated in a given one-year time period utilizing the factors of production located within a specific country’s boundaries. Managing budget deficits continues to be an essential technique for stimulating economies which have higher joblessness rates. The reason for the deficits is not because of the balanced-budget amendment, because the government is not offsetting or combating recessions. They continue to make things worse with out of control spending with a plan to pay back the large amount of debt borrowed from the American people.

When the overall economy slows down, income and Social Security tax revenues decline, due to falling wages and profits all prompt the government to take action which means continue sending the federal government deficit into a spiral downwards. In the interim, the American people suffer with unemployment cuts, Medicare cuts, and social programs eliminated and bailing out an underserving auto industry. These types of modifications automatically put the federal budget into deficit, even if a balanced budget had been planned at the start of the fiscal year. If a constitutional amendment requires the government to balance spending and revenues at the end of the year, then the White House would be forced to cut spending or raise tax rates. This could then slow the economy down, just at the time when it is most in need of stimulus. The political systems on a federal, national, and state level can share the blame for the expanding deficits. There is an answerability to the public by Congress to ensure pertinent laws are passed. However, the executive branches, Senate and legislation appointees bring the process to a standstill which is opposite of the intended Constitutional aspirations (Sparknotes, 2013, pg.1)

The major reason is the system is destroyed because there is no accountability of spending limitations and unimpeded power. The political financial system motto is borrow money now with an IOU that never ever gets paid back. In the news, it is possible to point at the stimulus that contributing to the deficit. The federal government goes uncheck when borrowing tax dollars from the public. Whenever the federal government borrows, they offer its creditors federal government securities declaring the conditions of the loan product: the principal becoming borrowed, the interest rate to be paid on the principal, and the timetable for making the interest payments and principal payback. The amount of outstanding securities equals the amount of debt that has not yet been repaid is government debt.

Surplus

It was not Clinton’s determination alone that brought about the budget surplus to appear on his Presidential term but his commitment to laying a sound fiscal policy. George H .W. Bush’s 1990 deficit reduction deal, should be credited as well for reducing the deficit along with Clinton’s 1993 budget. According to the Bureau of Labor Statistics, the government had periods of surplus during 1990 that contributed to the continued growth of the United States (Su, 2001, pg. 3).

The 1990s thriving economy was a factor that led to a surplus while Bush and Clinton deserve credit for helping lay the foundation for a practical fiscal policy. There are various other elements in 1994 that lead to surplus by the federal government such as the stock market doing very well with a great economy. “President Bush added the most to the debt, more than $6 trillion. This more than doubled the debt, which was $5.8 trillion on September 30, 2001 — the end of FY 2001, which was President Clinton’s last budget”(Amadeo,2014). Furthermore, Clinton’s large budget surpluses can thank the Social Security tax on payrolls. The Social Security taxes brought in more than the cost of current benefits which contributed to the surplus. The Clinton years showed the effects of a large tax increase that Clinton pushed through in his first Presidential year. Clinton’s fiscal 1994 budget also contained some spending restraints that keep the balance until he left office. An equally, if not more powerful influence was the booming economy and huge gains in the stock markets and the dot-com surging markets. The dot-com was responsible for injecting hundreds of millions of unforeseeable tax revenue from taxes on capital gains and rising salaries.

Many economist cannot deny the impact of President Clinton budgeting policies which clearly held a big part in the federal government surplus in the late 1990s. President Clinton will not be forgotten for his budgetary leaders. The President should receive credit for the surplus because he accepted the idea of the Balance Budget Acts and paying off all of the government debt. In addition, Bill Clinton was savvy enough to support some of the Republicans issues such as welfare reform changes to the immigration laws. In addition, Bill Clinton wanted earmarked that surplus to pay the national debt and he vetoed the Republican plan to spend the surplus. The Republications should receive part of the credit for the 1990s surplus. They fought hard on the White House hill to establish the budgeting framework that fought for budget reforms to create a surplus.

President Ronald Reagan’s economic policy and his financial administration did contribute to the deficit. He was known for a large amount of tax reduction and historical growth of the Federal Reserve during a peacetime era. Nevertheless, it cannot be ignored the increases in the federal budget due to the increase military spending during the threats from the Soviet Union. President Regan’s deficit is linked to the breakdown of the Soviet which lead to the balanced budgets for the Clinton administration. These surpluses were a vision and forecast that Ronald Regan believed would happen in the future. In addition, Regan must be credited for keeping the economy afloat along with the Presidents Reagan’s appointee to the Federal Reserve, Alan Greenspan. He was responsible for keeping the inflation low.

Presidents Deficit Contributions

The presidents and governments make political promises to get into office, however, the first hint of economic problems, the Presidents turn to stimulus or mortgage industry downward slide, automobile bailouts and bank bailouts. Based on a statement by Bandow (2012),”When both financial and economic crises hit, President George W. Bush backed a $170 billion “stimulus” bill and then massive industry bail-outs—of banks, Wall Street, automakers, and the housing industry”(pg.1). There are a mixture of the various aspects that have an effect on the President while in office that causes the President to respond, in an inappropriate way to further plunge the country into deficits. The first thing that impacts the President choices about debt is a weakened overall economy will invariably prompt the President to create a much bigger deficit that reduces the incomes and capital gains .

We must be fair about which President contributed the large deficits. It was President Bush the proceeded to cut taxes in 2001 and 2003, respectively. President Bush budget cuts hit the federal revenues hard while the government continue spending out of control. “Bush responded to the 9/11 attacks by launching the War on Terror. This drove military spending to record levels, $600-$800 billion a year. This included the Iraq War, which cost $807.5 billion” (Amadeo, 2014). This deadly combination ballooned the federal government deficit. The housing boom helped close that deficit gap during the Bush presidency. However, the market bottomed out caused the Unites States economy to plummet into recession. As result, President Bush left a predicament for President Obama because the Bush administration produce the worst recession in the last 100 years. However, President Obama contributed to the deficit as well. According to Bandow (2012), “President Obama accelerated the latter efforts while adding his own $825 billion American Recovery and Reinvestment Act in early 2009. Several smaller “stimulus” efforts costing well over $100 “(pg.1).

The trend for stimulus has been a tool for the Presidents however, they must consider the long term repercussions based on decisions that might keep the federal government in a deficit for centuries.

Presidents Contribution to Deficit

The most logical way at looking at the debt level is to examine the deficit when each President has left the office. The key to this measurement is reviewing the percentage of the debt collected under each President and compare the debt as a percentage of economic output. One the ways that President were able to disguise their part in the increasing deficit was using a twist on perception and words. They would tell the American people that the deficit has been reduced by lowering debt. It was just a play on words to appear they were working paying back the federal government deficit. Which is because each president was astute enough to make the distinction between deficit and debt. The presidential regimes we adapt at making the deficit appear smaller by borrowing from the internal government resources. This really is an unforgiving move by each president that has contributed to the growing deficit. The best example is the President can decrease his deficit by wasting the Treasuries and prevent any new Treasuries issuing. Nevertheless, the statistics do not lie about how each President played a part in the growing deficit. Here other examples of Presidents contributing to the deficit that was chronicled by Amadeo (2014):

• President Barack Obama: Added $5.081 trillion, a 44% increase to the $11.657 trillion debt level attributable to Bush is at the end of his last budget, FY 2009.
• President George W. Bush: Added $5.849 trillion, a 101% increase to the $5.8 trillion debt level at the end of Clinton’s last budget, FY 2001.
• President Bill Clinton: Added $1.396 trillion, a 32% increase to the $4.4 trillion debt level at the end of Bush’s last budget, FY 1993.
• President George H.W. Bush: Added $1.554 trillion, a 54% increase to the $2.8 trillion debt level at the end of Reagan’s last budget, FY 1989.
• President Ronald Reagan: Added $1.86 trillion, 186% increase to the $998 billion debt level at the end of Carter’s last budget, FY 1981.
• President Jimmy Carter: Added $299 billion, a 43% increase to the $699 billion debt level at the end of Ford’s last budget, FY 1977.
• President Gerald Ford: Added $224 billion, a 47% increase to the $475 billion debt level at the end of Nixon’s last budget, FY 1974.

Policy Makers

There is no incentive for policy makers to find solutions to pay off the deficit unless a major crisis impacts the entire country, otherwise there is no incentive for fiscal reform. In addition, the policy holders are driven by the interest rates, if the interest rates remain low, the policy holders will not try to pay off deficit. The burden of government debt is born by government employees, taxpayers and bondholders. Above all, politics determines who bears the costs. With low interest rates or economic growth, politicians can continue to run deficits. The Senate has lost perspective of its intended purpose. However the fact is, even if we just concentrate on the most uncomplicated of measures, the Senate is not serving its designed role in the U .S. political system. Instead, it is exemplified by partisan quarrels that are fighting for their very own reputations and power on the floor rather than serving the best interest of the America people. Because of the infighting, filibustering and posturing, the Senators are not able to get a simple bill to the floor for a vote, much less to successfully pass.

Growing Deficit

The United States political systems at the national and state level has not become able to manage the government’s deficit because the deficit is out of control. Furthermore, they have not put checks and balances in position to replace the money borrowed. To battle the global economic crisis, governments across the world provided hefty stimulus packages in the forms of temporary tax cuts and higher public spending to help economies spend their way out of the crisis. While the measures boosted consumption and industrial production and in the near term and helped in avoiding an economic depression, it has saddled most countries with ballooning fiscal deficit. The U .S. Treasury has borrowed over a trillions of dollars over the last two decades due to government not following constraints on government borrowing , borrowing authority uncontrollable , by investing in foreign investments , two long wars , bail out the United States financial system , and economic fiscal stimulus.

“In 2008 federal red ink was “only $479 billion. Since then Uncle Sam’s annual deficit has exceeded a trillion dollars. In addition, the Federal Reserve launched a massive “stimulus campaign—costly bail-outs and mortgage purchases, near zero interest rates, and two rounds of quantitative easing” (Bandow, 2012, pg.1).The country’s ability to borrow is restricted by legal statute, nevertheless, the federal government reached its borrowing capacity in May 2013, and, without the benefit of new borrowing power from United States congress. The Federal treasury is taking astounding steps to meet its financial obligations. The United States is undoubtedly able to raise its debt limit in a timely manner, and many economists claim that a failure to do so in late 2013 would plummet the government into default. Nonetheless, this is a good illustration of the government permitting the borrowing authority to reach this catastrophic levels.

The United States has responded the same way to economic changes for hundreds of years. Whenever, the United States are facing some type of recession, market crash or growing unemployment rate they will borrow money from the American tax payer creating massive deficits. The deficits are not a new phenomenon to the American people because we faced deficits during and after the WWI. The country enjoyed government surpluses until the country faced the era of the Great Depression. The Great Depression was responsible for running the totals back to the deficit numbers.

The United States did not recover from The Great Depression immediately because the WWII continue the trend of spending for defense of the country. The United States is so far removed from the surplus that they have forgotten about what made the country great in the first place. As result, the federal government and the American way of life forgot about the idea of living within your means. This country has enjoyed some decades of budget surpluses however, those times are far behind us today. In order for the United States to reduce the interest rate is to reduce the amount of debt. The only way to keep a significant surplus is develop fiscal policies that pay off debts before they become massive deficits. It is a simple fact that the only way to sustain a surplus is to spend less than one receives. On an individual plane, this is certainly feasible. However, on a national plane, in order to maintain a surplus is to reduce government spending and increase taxes. No other solutions are possible.

The American mass media platform has focused on the presidential campaign. The president campaign guarantees each year to fix the deficit while demolishing the credibility of the former President for not producing a surplus. The Americans are misled every election that the new President will make the necessary cuts and changes to ensure the county operates in a surplus. In reality, the Presidents have been responsible for the current and historical deficits that plague the United States today. Nevertheless, the American people must share some of the blame for forgetting how to live a humble and simple life at the means they can afford. American people are spoiled while living in access. They want the best and more of everything yet the government has to work out a way to finance this way of life. The president are often blamed for the deficit and the surplus by both sides Republicans and Democrats depending on who is in office at the time. In truth, Congress should approve all taxing and spending. The Congress is directly to blame for not passing laws legislation that should limit government spending. The Presidents can influence the level of spending and taxing, but they are dependent upon Congress to put into action their recommendations. The story never changes because each year most politicians promise to cut wasteful spending, decrease deficits, and help to increase jobs, however, the majority of their promises are unfulfilled. The primary problem is legislators that we voted for to protect our interest are controlled by other corporation with different set of goals.

Budget Surplus

In 1990-2000, we had a surplus which President Bill Clinton often takes the credit for the surplus years. Others indicate it was George W. Bush, who was responsible for the surplus. Clinton’s actions contributed to the protecting the budget surplus. The Republicans wanted to create a budget deficit using tax cuts to impact the GDP, nonetheless Clinton insisted on the United States stay at a budget surplus. President Clinton believe in the surplus so much that he vetoed the Republicans plans to create a budget deficit. In many political circles they have different definition of a budget and a surplus therefore, we must clarify the definition. In the economic world the term deficit is a shortage of revenue in any given fiscal year. In layman’s terms, the federal government spending exceed the income revenues. In contrast, at the end of any given fiscal years, the government has a positive balance is called a budget surplus.

Budget Deficit

The government budget deficit is when the United States government spends more then they receive in revenue. The businesses cannot run their enterprises in a deficit because they would become bankrupt. There are no penalties for the government that over spends more than they actually have in revenue. IN the real world the individual or business cannot run deficits year after year risking the credit scores useless while creditors wreak havoc on the business of individuals credit score. However, the government does not have any consequences for being over budget every year. The government has the power to overspend for decades without any repercussions other than effecting the economy negatively. It is a vicious cycle because the government does not have to pay those outstanding debts while they continue to be elected again and again into congressional office seats.

The secondary problem is the United States has the benefit of printing their own money which means they can continue to overspend while printing more money as a temporary fix to the national debt. The consensus by the economist is the deficit actually helps boost the economy because the government spending affects the national debt. In reality the budget deficit will never go away because it is a way of life for those in power. The only way for the United States to truly get rid of debt is to reduce the interest rate. The America people respond because the credit card interest is low, the mortgage payments are lower because of the interest rate being lowed. The only way to reduce the major debt is to payoff everyone the United States owe. The only way to pay off the national debt is to keep a large amount of surpluses. The only way the United States can maintain a surplus is to stick to the fiscal budget plans. In order to keep a surplus, the government must reduce spending and raise taxes. As you see, the national debt and deficits are a way of life that will never change.

The evidence is clear that the United States creates deficits to deal with wars in Iraq, Vietnam, or Afghanistan. President Clinton reduced the national debt, however, Bush took office in 2001 which his administration created the highest deficit in years. The trend did not start a few years ago with the incorrect way to balance the United States budget. The Presidents look at the country as a way to balance the budget but with war, recession, and market fall-outs forces them to make rash decisions. The rash decision is borrowing more money or just printing more money while national debt continues to climb. The government has depended on the support of private contractors and banks to help with the small trade surpluses. These are the short cuts to a stable economy by borrowing more and more money, as result they print more money is an unstable way to balance a budget. In an attempt to balance the budget the House is considering following the balance budget amendment that may be detrimental to the future of America. The changes include tinkering with Social Security which would cause catastrophic results for the nations long term financial debt solutions. The House is suggesting that the budget would be balanced every year regardless the condition of the economy. This amendment would plunge America in to a deep recession surmounting to job losses, raising of taxes and destruction of the fiscal budget as we know it. The primary problem is the House will slow down the economy.

Whenever the economy slows down, federal government earnings decrease or grow much more gradually and spending on unemployment insurance and other social programs increases, leading to deficits to rise. Instead of permitting the “automatic stabilizers” of reduce tax collections and higher joblessness as well as other advantages to support a weakened economic system , the amendment might force policymakers to minimize spending , increase taxes , or both . That could launch a destructive spiral of harmful economic and economic policy: a weakened financial system would certainly result in greater deficits, which might force policymakers to minimize spending or increase tax liabilities more, which might weaken the overall economy even more. The government cannot continue to ignore the budget every year because the United’s States economy is spiraling out of control. The amendment that the House is proposing goes against all what America stands for. This amendment will continue to plunge the United States into the new age depression that will surely devastate our economy to the point of no return. This amendment would give Congress the power to waive the balanced budget requirement with a three-fifths vote of the House and Senate. This is not the solution to balancing the budget.

References

Amadeo, K. (2014).Deficit by President. Retrieved from http://useconomy.about.com/od/people/fl/Deficit-by-President.htm

Bandow, D. (Aug 2012).Federal spending: Killing the economy with government stimulus. Forbes. Retrieve from http://www.forbes.com/sites/dougbandow/2012/08/06/federal-spending-killing-the-economy-with-government-stimulus/

Congressional Budget Office (CBO). (2014).The budget and economic outlook 2014 to Retrieved from http://www.cbo.gov/publication/45010

Krane, P. (2014).Senate deadlocks on extending job benefits. Retrieved from http://www.washingtonpost.com/blogs/post-politics/wp/2014/01/14/senate-deadlocks-on-extending-jobless-benefits/

Mutikani, L, (2014).Wider U.S. trade deficit to weigh on the first quarter GDP. Retrieved from http://www.reuters.com/article/2014/04/03/us-usa-economy-idUSBREA320XW20140403

Plumer, B. (2013).Absolutely everything you need to know about debt ceiling. Retrieved from http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/04/absolutely-everything-you-need-to-know-about-the-debt-ceiling/

Sparknotes. (2013). the legislative process. Retrieved from http://www.sparknotes.com/us-government-and-politics/american-government/congress/section4.rhtml

Su, B. (2001).The U.S. economy. Monthly labor review, 18 (1), 20.

Wilson, G. (2011). US debt tops $16 trillion: So who do we owe most of the money to? Retrieved from http://www.foxnews.com/politics/2012/09/04/who-do-owe-most-that-16-trillion-to-hint-it-isnt-china/