The federal budget is an important part of the economy in any country; and, as the Deficit in the United States grows, it is more important to maximum employment, production, and purchasing power. The current deficit as a percentage of GDP is near 11% which is the highest since the 1940s during WWII. The government debt is will rise even higher with the recent health care bill which brings unrealistic spending and tax increases.
America’s economy is drawing near to fiscal train wreck.One article by Holtz-Eakin states that, within the next 30 years, the 20% of GDP dedicated to federal expenditure could increase to 30 or 40% of GDP. The conditions do not seem to have any improvement in the near future, and the federal deficit will only increase with the recent government’s health care bill. The results of a widening deficit are increased demands from foreign investors and the reduction of the value of the U. S.
dollar. The consistent increase in the deficit could greatly drive up interest rates and eventually cause lenders to lose trust in the United States.As the world loses faith in the strength of the dollar, government bankruptcy, economic chaos, and the collapse of the west as an economic power could be at hand. However, in reaction to these bleak times, the Obama administration created the bipartisan National Commission on Fiscal Responsibility and Reform to attend to our nation's fiscal challenges. The Commission was created to compose policies to improve the fiscal situation in the immediate tenure and to reach fiscal sustainability over the long run.
One main goal of the commission is to cap revenue at 21% of GDP and get spending below 22% and eventually to 21%. Various other goals of the Commission include: Reduce the deficit to 2. 3% of GDP by 2015, achieve nearly $4 trillion in deficit reduction through 2020, and stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035. The Commission will propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. The Commission has a tentative plan composed of six parts that promote economic growth.First, there are already measures being taken to cut some government spending; discretionary spending cuts will end wasteful programs and ease government operations.
Second, comprehensive tax reform will be sought by reducing rates, reducing expenditures, and reforming corporate taxes. Third, health care cost containment will be prioritized as the new health care bill becomes enacted, to relieve some of the pressure caused by the rising costs. Fourth, mandatory savings will include squeezing agriculture subsidies, military retirement systems, and student loan programs.Fifth, social security reforms will ensure long-term solvency, reduce poverty, and restructure social security. Finally, the sixth step is process changes which will reform the budget process to make certain the debt level remains on a secure path, control spending, and wipe out tax discrepancies.
The Commission shall propose these recommendations that meaningfully improve the long-run fiscal outlook. Incrementally, the Commission will seek to institute changes to address the growth of entitlement spending and the poor percentage levels of outlays, revenue, the deficit, and the overall debt of the Federal Government.A good model of a positively stimulating economic plan for the Obama administration is the Clinton-Greenspan policy of the late 1990s which also faced a record-high deficit in 1992. The Obama administration should attempt to reproduce this historical model which resulted in a mixture of liquidity, budget surpluses, and low interest rates. Clinton’s administration had the goals of establishing fiscal discipline, eliminating the budget deficit, keeping interest rates low, and spurring private-sector investment.However, historically it seems that Obama’s administration is closer to following the Reagan-Volcker policy of the early 1980s.
The Obama administration must to move away from this strategy which ended with a mix of large deficits and high interest rates. If the Obama administration follows the Commission’s seemingly water-tight plan with dedication, the result will have a positive effect on the nation. It should bring similar results as many of Clinton-Greenspan’s tight budgeting policies which led the Federal Reserve and the United States in economic success for almost a decade.