Taxes, Budget and Today’s Economy
The United States National budget is a big topic of conversation right now on the political front. It is an election year and many people are looking for ways to boost our economy or at least make promises of doing so. But creating and maintaining a balance budget that will reduce our debt and in turn make the United States a stronger presence in the world is not an easy task for anyone. Good ideas are generated but if Congress does not pass them, than it is a moot point. It is important to our, the United States economic future to come up with a budget that reduces our current national debt.
As of this moment in time our total debt is over $57 TRILLION dollars and rising fast. This paper will explain some of the history and effects of the United Stated budget on our economy. Many people believe that tax cuts will have a positive impact on our economy, but is that really true? According to the Congressional Budget office, tax cuts have created the largest budget deficits in the past decade. Tax cuts do tend increase economic spending in the short run but studies indicate that the tax cuts decrease long term economic growth. Tax cuts do help the economy in times of recession with an economic boost.
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However, these tax cuts must be paid for by reducing expenditures someplace else, such as reducing military spending. Extending the tax cuts without paying for them would, in the long term, slow economic growth. Making tax cuts permanent would increase our deficit by trillions of dollars, which we cannot afford. Taxes, Budget and Todays Economy One way to increase revenues and reduce our debt is to ensure that the United States exports more goods than it imports. A country that imports more goods than it exports than the entire economy could be threatened.
It is important to keep the spending here in the United States and not send our money abroad to other countries. The United States government should place a high tax on companies that send jobs overseas to reduce their overhead. The tax or penalty should be so high that companies want to keep their staff here in the United States. Increased taxes can go either way. An overall increase of taxes could slow down economic growth with more people holding on to what is left of their money after taxes. Generally when this occurs our economy goes through a deflationary period. This means that people are not making purchases for goods or services.
Thus, manufacturers do not need to manufacture as much goods for the market, in turn; they downsize and lay off employees. This creates higher unemployment, more people receiving unemployment compensation, which adds to the nation’s fiscal burden. Under our current presidency, there are increased taxes on the table that would only increase the very wealthy this is sometimes referred to as the “Buffett Rule”, which is defined by the Whitehouse as “a simple principle that everyone should pay their fair share in taxes. No household making more than a $1 million should pay a smaller share of their income in taxes than middle-class families pay.
For the 98 percent of American families who make less than $250,000, taxes should not go up” (whitehouse. gov) with this plan only the very wealthy are impacted by higher taxes. Taxes, Budget and Todays Economy Recessions generally go hand in hand with a deflationary period. Recessions are a slowdown of economic growth lasting longer than a few months. 80% of Americans currently believe we are in a recession (theeconomiccollapseblog. com). In times of recession it is important for the government to fund items and increase spending even though it impacts the national deficit and NOT increase taxes.
The government should fund projects that increase employment including but not limited to construction, education, and large scale infrastructure projects (highways, bridges, etc. ) This type of stimulus to our economy, creating jobs and putting more money in the hands of the people, generates spending. This will then create more jobs in small businesses as the demand for goods and services increase in the community. It is a tight rope to walk but it can be done and has in the past. A balanced budget, when there is neither a surplus nor a deficit, is historically what every president of the United States attempts to create.
But with the national debt at $57 Trillion dollars it will take many many years to bring our debt down to an amount that is within the realm of normalcy. While a deficit in lean years is thought to more desirable a balanced budget tends to increase economic growth, decrease interest rates and increase savings. Although the budget is a direct reflection on the president and he is the one that takes responsibility for the budget we cannot forget that it is Congress who has control over all financial and budgetary issues and matters.
So while a president must come up with a budget it is up to Congress to pass it. Not so easy when let us say, a democratic president is in office and the republicans have control over Congress. The last republican president to preside over a balanced budget was in 1956 and 1957 when Dwight Eisenhower was president. Since that time there have only been two Taxes, Budget and Todays Economy Presidents that were able to say they held a balanced budget while in office. They were Lyndon Johnson in 1969 and Bill Clinton 1998 through 2001. Since the 1960’s our country was generally run on a deficit.
In the last 40 years there have been five instances in which our country ran on a budget surplus, remarkably all five instances were under the leadership of a democratic president, they were 1969, 1998, 1999, 2000, and 2001. This graph, taken from dailymarkets. com, depicts when our country was either in a deficit or the few times our country ran on a surplus. There is a balanced budget amendment on the table, while both parties agreed to have an amendment in the summer of 2011 as part of an agreement to raise the debt ceiling in the United States; they have been unable to pass it with 2/3 of the vote in the House of Representatives.
Most republicans support the amendment and most democrats do not support it. Democrats are concerned that this would spur large cuts in spending. The democrats are concerned that these Taxes, Budget and Todays Economy cuts would be massive in the areas of public interest such as social security and healthcare. The citizens of the United States appear to be in support of a balanced budget amendment, a recent poll shows that 3 out of 4, 60% of Americans support an amendment that would help reduce our debt and the deficit spending.
A balanced budget amendment may not be the answer to America’s prayers. Should an amendment for a balanced budget be passed, a cut in spending that would be necessary would impact the unemployment rate. Economists say that it could go from 9% to 18%. Most agree that spending cuts during a recession is the last thing we need. It would eliminate government jobs or cut government programs that keep consumers spending money. When consumers are spending money, more jobs are created and the economy grows. Unemployment rates usually improve during the times of a budget deficit.
When the government is spending money it is generating new jobs. However, politicians are concerned with creating a more balanced budget, which requires spending cuts. Unfortunately this will have a negative impact on our unemployment rates. One of the most highly thought of economic forecasting firms, Macroeconomic Advisors, has determined that should a balanced budget amendment be passed that unemployment would double this year alone. It is in the government’s hands to come up with a win/win for all. Reduce spending, balance the budget yet create more jobs to reduce unemployment.
Most economists say this cannot be done. So what is America to do? First, America needs to keep jobs here in America. Greedy corporations looking for cheap labor sending manufacturing, as well as service jobs outside the Unites States should be highly taxed and they should not receive any type of subsidy or tax breaks. Those Taxes, Budget and Todays Economy corporations should be taxed so high that sending those jobs outside the United States would be detrimental to their bottom line and even possibly put them out of business.
Historically, the tax cuts that took place in 1920’s, 1960’s and the 1980’s show that these cut were beneficial in stimulating economic growth in our nation. Put money back into the pockets of Americans and they will spend. The process begins again, spending leads to demand for products and services which create more jobs. More jobs equal more money in the pockets and so on and so on. So now, it is up to our elected officials to come together and make the best budgetary decisions that will improve the nation’s economic future.
As history has proven, economic growth in times such as these can be done. It will take work, it will take compromise on all parties, but they must come together for the betterment of the people and not just their own political goals, desires and ambition. It will not be an easy task. It is imperative that the sitting president and Congress make decisions that will increase employment, increase taxes on those that can afford an increase, reduce frivolous spending and spur economic growth in this great United States of America.