Effects of fiscal policies in U.S military and economy
Governments of economies may take up various policies or regulations to govern the flow of the economy. The policies can be directed to specific government departments, or they can be directly executed on the public after relevant communication has been made. The strategies or policies that a government can take are either fiscal or monetary. Fiscal policies control the government expenses and revenues in the economy while the monetary policies are means by which Central Banks of economies monitor the flow of money, which is money supply in the economy. In this paper, we analyze the fiscal policy implementation in the United States specifically the Military department and the way the policies have impacted the department and the US economy as a whole.
A fiscal policy refers to how the government of an economy controls and monitors its expenditures and tax level to ensure economic growth. The strategy can be either used to increase or decrease expenditures or taxes as stipulated by John Keynes in the Keynesian economics. By control of government spending and taxes, inflation and unemployment crisis are mitigated. The government of economies for example, in our case study the US, incurs various expenses in the day to day running of the country’s economic affairs. In the United States, the defense or military department is one of the core sectors of government interest since the security of the citizens of the nation depend solely on the hands of the defense forces. The relevance of the department calls for a major investment by the Federal government in the sector to ensure there is maximum security.
Over the past years, the expenditure of the US government has been decreasing at a relatively constant level as compared to other nations like China which are currently embarking on investing in security lately. In 2010, the total amount of expenditure was 847.86 us dollars which were followed by a 31.5 billion us dollars increase which made the spending on defense rise to 879.36 billion us dollars. In 2012, the expenditure decreased by 28.89 billion us dollars to 850.47 billion us dollars and a further reduction in the spending by 30.83 billion us dollars has been observed in 2013which has seen the usage reduce to 819.64 billion us dollars. In 2014, the expenses further diminished to 801.11 billion us dollars and in the year 2015, just a further decline of 1.62 billion us dollars has been noted.
The above trend shows that the federal government expense on the military has been on the decline for the past five years. The decline can be attributed to a massive embankment on investment in the security sector over the past. The federal government has been continuously investing in the safety of the nation since there has been a series of terrorist attacks in the country. For instance, when the US was attacked by terrorists on September 11th, 2011, it embarked on massive investment in defense forces which saw the expenditure take an upward turn since then up to recently since 2010 when it has started to decline.
The US federal government gets the money to incur in expenses from the taxpayers money which creates revenue for the government. The state governments and the local governments in the US impose a tax on income on individuals, corporations, partners in partnerships and trusts to ensure that the federal government has adequate revenue to execute its development plans and also fund various state departments such as the above mention Military force. A tax multiplier is determined by decision-making bodies which stipulate the tax as per income earned. Apart from generating revenue, the federal government has other reasons for taxation such as discouraging consumption of harmful products such as drugs in the country. By raising the tax on such products, the government can discourage their use and at the same time collect revenue from the fee collected, which could otherwise not be available.
The tax trend in the United States has been on the increase in the past five years since the year 2010 which has been signified by a rise from $2.16 trillion to $2.3 trillion in 2011. In the years 2012 and 2013, the tax revenue collected has been on the rise being $2.45 trillion and $2.775 trillion respectively. The revenue collected has further increased in the fiscal year 2014 from 2013 which has raised it to $3.021 trillion, an increase of $0.246 trillion. The latest tax revenue collection has amounted to $3.176 trillion which still implicates that there is an increasing trend of tax collected. The increase in tax revenue collected can be related to inflation and price rise.
Over the years, the general price level of commodities and property has been on the rise. Mortgage rates have been continuously increasing which has to be reflected in the tax the government taxes. Another reason for increased taxes is increased investment rate in the US which yield income that is continuously increased which suggests that the taxable income also increases. Foreign economies are also currently investing in the US economy which was spear-headed by the collaboration of the US government, Russia, and Iraq in the control of oil prices in 2011. The plants the firm set up in the United States land are usually taxed, and since oil is an economy-controlling product, tax revenue collected from it forms a significant percentage of the tax revenue.
The decreased government spending and increased tax rate have both impacted the US economy in that they have altered the incentive to work (Chen, 2015). The two fiscal policies have different effects on the households and the government. To the families in the US, the increase in the taxes causes their disposable income. Since the Federal government does not spend all the taxes it collects as expenditure, the total revenue does not find its way to the aggregate demand, thus making the taxpayer fully enjoy the benefits of their tax. However, the Gross Domestic Product of the US will increase because there is more saving than consumption. Embracing the culture of saving ensures that the households in the United States always have something to consume at a later date, which in turn leads to a reduction in total expenditure in the economy. In the US, people have invested a lot in private investment. The motive behind this feature is that, due to decreasing government spending, the private investors tend to grow; with a large market at their disposal hence they receive a significant return on their investment when their products reach the market.
Other features of the fiscal policies in the US economy include the automatic stabilization of the economy, the rate of consumption and saving and the multiplier effect (Yu & Rickman, 2012). The multiplier acts as a booster of the initial impact of the change in government spending or taxation. The reduced government spending takes money out of the economy, and when the multiplier stimulates the flow, the economy starts falling into debts. If the United States government decides to decrease the tax rates on household goods to increase their consumption, households still will prefer to save their money since they know that it will be worth more at a future date. However, when the consumers in the United States decide to save rather than spend, the consumption level in the economy decreases, which discourages investors from investing. Government spending, on the other hand, cushions households from prevailing economic situations such as unemployment because; they create a fund that can sustain the unemployed till they are employed.
On the side of Military sector, there is a rising economic cost such that for the US military to attain certain standards it must input capital investment in the sector regarding modern technology and machinery. The investment in the defense sector is beneficial to the American economy since as the statistics reveal, ever since 2001, there have minimal occurrences of terror attacks and crimes in the US. The reduced crime rate has been as a result of massive investment in the security over the past fifteen years.
Creating employment is an important aspect of the economic growth of an economy. The defense department in the United States has embarked on employing most qualified and technical personnel in the industry which has ensured the economy has a high human labor. Investment in the defense sector has seen the productivity of the US and its allies go up; for example as the US invests in weaponry, their allies, especially in the developing economies, invest their relative industries such as agriculture and oil with more confidence since the US as the superpower is in a capacity to cushion them against economic and security threats. Inflation has led to increased cost of production which has led to increased production cost of defense machinery which has made the weaponry and the machinery to be expensive which has been worsened by reduced government spending over the years.
Every enterprise seeks to develop and grow with time. The US federal system attempts to have attained stable prices and a steady employment level by the next two years (Brown, 2012). The government targets at ensuring that the mortgage rates are standard and attainable such that the housing problem is eliminated to minimal levels in the next half a decade. Also the federal government target at ensuring an optimum consumption level and stable wages to the households to sustain the increased expenditure. The federal government should make sure that tax rates are decreased to ensure consumption and provide an incentive for consumers to work for economic growth. Also, government spending should be increased such that there are projects that can create money for expenditure in the economy which ensures a constant flow of cash. The defense department can embark on making partnerships with other super powers and industries in the weaponry industry such as Russia, which in turn makes them able to minimize their expenditure on machinery and at the same time widen their military strength due to alliances formed. Only through co-balance and co-relation of various economies and economic aspects can a stable economy be attained and sustained.
References
Chen, P. (2015). United States Fiscal Sustainability and the Causality Relationship between Government Expenditures and Revenues: A New Approach Based on Quantile Cointegration. Fiscal Studies, n/a-n/a. http://dx.doi.org/10.1111/j.1475- 5890.2015.12053
Yu, Y., & Rickman, D. (2012).US state and local fiscal policies and non-metropolitan area economic performance: A spatial equilibrium analysis*. Papers In Regional Science, no- no. http://dx.doi.org/10.1111/j.1435-5957.2012.00423.x
Brown, S. (2012). The future of US global power. [Basingstoke]: Palgrave Macmillan.
