Question 1
The deficit can be best reduced by a combination of spending cuts and raising taxes. However, spending cuts are more effective in reducing the deficit. Raising taxes should be as limited as possible to avoid undesirable economic consequences (Mankiw, 2015). Raising income tax adversely affects the living standards of the citizens. Besides, an increase in corporate taxes may lead to higher prices of goods and services, a reduction in employment and some companies shifting their production and other activities to countries with favorable tax policies.
Reducing government spending is key to ensuring a balanced budget as well as reducing the debt levels. Spending cuts should be done in areas that are not so critical. Without a reduction in spending, even an increase in taxes will not have a significant impact in reducing the deficit.
Question 2
I firmly believe that this burden should not be borne by a single group of people. The burden should be shared progressively (Mankiw, 2015). For instance, the rich should bear a greater burden than the poor. The burden should be shared based on the ability to pay. This will ensure fairness. Besides, if the entire burden is left to the wealthy, it adversely affects investment, among other macroeconomic variables thus reducing economic growth.
Question 3
My plan was mainly comprised of spending cuts and one tax increase. The strategy includes the following:
Using chained CPI for mandatory programs and the Tax Code. This will reduce the deficit by $190 billion.
Progressively reduce benefits while protecting the low-income earners. This will cut the deficit by $90 billion.
Cutting foreign aid. This plan involves reducing international assistance programs of the Department of Defense, and this lowers the deficit by $150 billion.
Modernizing cost sharing for Medicare. It will decrease the federal deficit by $160 billion.
Introducing premium support to Medicare, which will reduce the deficit by $380 billion.
Increasing excise tax on alcohol. This reduces the deficit by $80 billion.
References
Mankiw, N. (2015). Principles of economics (1st ed.). Mason, OH: South-Western Cengage
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