A budget is an integral part of any economy. It outlines the financial plans of a country to facilitate economic growth. Most countries, including the United States of America prepare a budget comprising a one fiscal year financial plan. The US budget has indicated a deficit since 2008; this indicates that the government’s expenditures exceed the amount of revenue collected from the tax revenue. The federal government borrows funds to achieve its expenditure needs, and the interest rate increases annually. The borrowed funds are paid using the tax receipts from the taxpayers; the US government usually pays off the interest rates exclusively, which leads to the accumulation of the principal amount. This situation leads to the accumulation of debts, which create a deficit in the economy’s budget. It is essential to implement strategies to increase the government’s revenue without necessarily increasing the amount of national debts.
Factors Dominating the Budget
The items that dominate the budget in Obama’s speech include tools to regulate the fiscal policy, improvement of living standards, especially among the middle-income households, and measures to facilitate savings. Increasing investments to increase the Gross Domestic Income (GDY) and reduce deficits also dominated the budget in the current fiscal year’s plan. Enhancing economic growth can play a significant role in minimizing the deficit balances. The tax issue dominated the budget, as the president proposed the need to increase the tax rate among the wealthy, and reduce on the middle income earners.
The Budget Priorities
The priority to improve the middle class income is to enhance the creation of investment opportunities in the American economy. The need to fill the rising gap between the wealthy and the middle-income earners requires a balanced policy. A growing economy can eradicate the deficits within a short period; reducing the income gap can help to increase the Gross Domestic Income required to minimize the deficits. A reduced tax scheme for the middle-income earners will foster savings, which in turn lead to increased investments. Capital investments are vital for economic sustainability. The budget priorities include increasing the investment level to encourage the creation of employment opportunities. This will be achieved by investing in the manufacturing sector to provide high-tech jobs for the American population. Increased revenue in the economy will lead to a rise in the tax receipts, which will enable the government conduct its expenditure plans, which include settling its fiscal debts. Economic growth and sustainability is the priority of the US federal government. A balanced budget that incorporates the needs of all sectors in the economy is vital to achieve this objective.
The Reason for Deficit
The deficit occurs whenever the federal government borrows funds from the treasury. It receives the funding in the form of securities such as notes, bills, and bonds. The deficits accrue due to the government’s failure to settle the principal amount of the securities. The federal government avoids increasing the tax revenue to settle the debts, and instead focuses on paying off the annual interest on the securities only. The collected tax receipts are not sufficient to settle the government’s debts since the interest rates increase annually. The rolling over effect on the principal amount of the issued securities leads to the creation of deficits. The US economy passes the deficits to the future generations, which limits future economic growth.
Recommendations
The effort on reducing deficits in the economy should incorporate beneficial strategies, such as encouraging the federal government to maximize utility on the available idle funds in the economy. Borrowing from the treasury is beneficial as it enables the government to accomplish its fiscal policy plans. According to President Obama, some Congress members restrained the government from increasing its expenditure plans. Encouraging government spending is essential as it increases the money supply in the economy. Availability of income in the economy facilitates investments, especially among the middle class earners. Investments are likely to play a major role in increasing the employment opportunities in the economy. The Gross Domestic Income will increase with a rise in the investment level. Moreover, the tax revenue will increase, which will reduce the federal government’s borrowing.
Government’s borrowing through security funding is useful for the American economy. This is because it enables the federal government to acquire funds for its expenditure purpose, rather than increasing the tax rates on the public. The government, however, should focus on depressing the national debt relative to the domestic income ratio. The objective should be to ensure that the amount of the deficit is insignificant in relation to the country’s gross national income level. The federal government should formulate strategies to minimize the deficit growth, and seek to boost the output growth through the development of employment opportunities and minimization of income disparity among the population.
According to President Obama, the deficit is falling at a high rate. This rate is insignificant since the cost of living is increasing, which is affecting the living standards of the middle class population. The prevailing high tax rate has a negative effect on several people’s income in the economy. The federal debt at the end of 2013 was approximately 16.8 trillion. This amount is still high, which hinders the government to accomplish all the activities outlines in its budget plan. Increasing the output level can help the economy achieve its goals, such as enhancing economic development and reducing federal debts. Encouraging a simple and fair tax code will help the American economy attain an economic growth and equality in the distribution of resources.
Measures to Balance the Budget
The government should incorporate both fiscal and monetary policies to enhance a balanced budget. The fiscal policy entails a reduction or increment in the government expenditure in accordance with the prevailing tax revenue. President Obama proposes a plan that involves reducing the tax rate on the middle class, and increasing the tax rate on the highest-income earners. This measure will enhance a balanced budget, as the government will compensate for the lost income of the wealthy population. The monetary policy has an indirect influence on the aggregate demand in an economy. The fiscal policy, on the other hand, influences the aggregate demand directly. Improvement in the level of aggregate demand will not automatically lead to the creation of employment opportunities in the American economy. The government should control the expansionary and discretionary measures to ensure that the economy achieves a balanced budget. The inconsistencies in the expansionary and fiscal policy balance can be corrected by a reduction in the reserve requirements, and that of discount rates. The government can embark on opening the market purchases to facilitate a balance in the revenue creation and expenditure plans.
