U.S. BUDGET DEFICIT.   Term Paper ID:18189 Click to get this paper

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Paper Abstract: Potential problems, suggested solutions. Paper Introduction: The United States budget and its continuing deficit has been one of the most persistent issues of recent years. The ideal of achieving a balance between expenditures and revenues has long been a political objective at the federal level, albeit an elusive one. The purpose of this paper will be to discuss the budget deficit, the history behind it, the legislative actions taken to deal with it and the associated problem and suggested solutions. With the national debt hitting $3 trillion, the Bush administration claim the annual budget deficit will disappear by 1993 (Nasar, 1990, p. 61). But, while the deficit has been decreasing dramatically from its peak in 1966 and appears to be continuing this downward trend, the reality is that other interests will restrain the actions necessary to achieve a Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. However, as the country enters an era of peace withthe collapse of Communism, "the urge to splurge will become tough tocontain, as demand builds for new projects like road repairs (Nasar, 199 ,p. 1). With the new "peace initiative" the order of the day, it would seemlogical to meet this reduction by cutting the Pentagon budget. Others would like to see the budget reflect economic support forthe newly-democratic eastern European countries. 16). 1). Congressional Digest,258, 288. Those in favor of doing away with the national debt point out thatfor every $5 billion reduction in deficit, a one-point drop in a realinterest rates would result (Beatty, 199 , p. Programs such as health care and the country'sinfrastructure are at the top of the list since they are in need of majoroverhaul. (199 , February 26). All of theseoperational tools failed to keep the annual deficit under control however,and by 1982, with the national debt well over $6 billion, the Senatepassed a balanced budget amendment, the first time such a measure had beenapproved by Congress. National Review, 46-51.----------------------- 1 82). One solution is to keep the pressure on Washington to dealwith the issue of the budget deficit. 61). But, while the deficit has been decreasing dramatically from its peakin 1966 and appears to be continuing this downward trend, the reality isthat other interests will restrain the actions necessary to achieve abalanced budget. Evolution of Legislation. A symptom was the October stock marketcrash of 1987, according to Brian Reading, of HME International AdvisoryAssociates("The Great,", 1989, p. Those who oppose the idea believe that the problem lies in thepolitical process and that the amendment proposal provides a mechanism foravoiding difficult budget choices and working to make the government moreefficient and accountable. Due largely to higher tax revenues from an expanding work force and ahalt to the once exploding Pentagon budget, the federal government managedto keep the deficit down to $152 billion in the 1989-199 budget (Redburn,199 , p. (1989, November).Congressional Digest, 257. The real risk is the Gram-Rudman law's target of $64 billion as thebudget deficit for 199 -1991. 47). In addition, the total federal debt owed toforeign and domestic lenders has stabilized. Such a reduction wouldalso lower the trade deficit by $25 to $3 billion because the borrowing offoreign capital to finance the deficit would decrease. The budget proposalincludes projections for revenue based on certain equations. Nasar, S. In addition, itwould lover interest rates, thus increasing investment by $16 to $2 billion (Beatty, 199 , p. However,the Bush administration faces stiff opposition as it attempts to do so forCongress will be fighting to save favorite weapons programs and localmilitary bases. The purpose of thispaper will be to discuss the budget deficit, the history behind it, thelegislative actions taken to deal with it and the associated problem andsuggested solutions. Senator Daniel PatrickMoynihan (D-NY), on the other hand, is sponsoring a plan in the 199 -1991budget calling for a $62 billion Social Security tax giveback over a twoyear period. U.S. Beatty, J. The main stumbling block is the politics of the process. Its requirement of huge funding cuts could drive the country into arecession. (199 , May 29). Should Japan and Europe runout of dollars to continue to feed America's spending habit, the resultscould be drastic for everyone. 26). The first billion-dollar expenditure record and public debt level occurredwith the Lincoln administration and the Civil War ("Evolution," 1989, p.258). Opponentsargue that too many variables enter into the scenario when making decisionspredicated on economic factors so far in the future. The federal budget process is on-going. Further, the negotiations that go on between the administration andcongress until the budget is passed (many times after the fiscal year hasbegun) introduce political issues that may require the Supreme Court tobecome involved should a balance budget be law. Thisamount is more than what the government spent on any other program,including Social Security (Beatty, 199 , p. An interesting factor in the middle of all this budget cutting andreappropriation talk is that the economy has grown without interruptionover the last seven and one-half years despite the federal budget deficit.Granted, the rate is slowing down, but it is still growing. Reading's belief that the deficit was responsible for the 1987 crashis common among international bankers, Wall Street and the media. With the national debt hitting $3 trillion, the Bush administrationclaim the annual budget deficit will disappear by 1993 (Nasar, 199 , p.61). "In fact, as long as the nationaldebt does not grow much faster than the economy itself, the United Statesprobably does not face any day of reckoning for its profligate ways"(Redburn, 199 , p. Currently, the gap between spending and revenues is no longer so widethat it threatens to push the government's borrowing costs uncontrollablyupward (Redburn, 199 , p. He believes the plan is needed to keep Washington from"misusing" the growing surplus in the retirement fund to finance thegovernment's budget deficit (Nasar, 199 , p. The President submits toCongress in early January the Administration's budget request for the nextfiscal year which begins the following October. The AtlanticMonthly, 74-82. 257). But by 1913, it had risenagain and stood at $1.2 billion. This figure represents about three percent of the U.S.economic output (the gross national product or GNP), down from a peak of6.2 percent (p. Redburn, T. In fact, defense outlay will probably be reduced by only two percenta year, after inflation, which amounts to just $4 billion (Nasar, 199 , p.61). 82). (1989, November). "Although cutting the deficit might crimp consumption in the short run, they argue, it would free more funds for private investment to strengthen the long-term outlook for the economy" (Redburn, 199 , p. Los Angeles Times, 1, 16. 257). The Act's failure to hold the deficit to any significant reduction,however, has given rise again to the idea of a balanced budgetconstitutional amendment. Massive deficit reduction has perils,analysts warn. Popular support has grown for it in recantyears; President Reagan strongly endorsed the idea and President Bush hascalled it "the most fundamental change that is needed" in the budgetprocess ("Balanced," 1989, p. This law, a symbol of the government'spromise to balance the budget, would require such a massive slash to thebudget that analysts are convinced it would throw the economy into arecession (Redburn, 199 , p. Robert L. Critics also believe thatthe number of exceptions that would have to be either written into theamendment or decided upon by the President would render it ineffective("Balanced," 1989, p. The other fact is that ninety-seven percent of Americans would ratherspend any defense cuts on domestic programs than to trim the deficit(Nasar, 199 , p. Fantasy and facts about the budgetdeficit. That figure is lower than atany time from 1945 to 1965. "As a percentage of the GNP,it has been falling in recent years," says Martin Anderson, a conservativeeconomist at the Hoover Institute (p. Through succeeding decades, differentpieces of legislation were passed to place ceilings on the debt and toforce a balance of the budget. Emphasizing the inexact nature of the budgetplanning process and its sensitivity to fluctuating economic conditions,they say it would be impossible to guarantee a balanced budget. 1). Thoughsome may disagree, the bond markets in Tokyo and New York have shown signsthat the dollar sight be dumped. Brownstein, V. However, President Coolidge was the lastPresident to see a net surplus in the federal budget and by 1969 thenational debt was at $357 billion thanks in part to the 193 s' New Dealprogram, World War II, the Korean War, and the Vietnam War ("Evolution,"1989, p. 16). 16).As a result, America would buy less and save more, and the higher savingwould lead to more domestic investment and less borrowing from aboard. 258). In the budget battle, there'snot much room to maneuver. Succeedingpresidents faced varying levels of deficit due mainly to varying conflicts. 51). Proponents also argue that the concept of a balanced budget is partof an "unwritten constitution" since the beginning of the republic and thatonly since the 193 s and Roosevelt's programs has deficit spending been anacceptable practice. Those in favor of the amendment believe that the budget problem hasreached such magnitude that it can no longer be controlled through laws.Citing the disruption to the economy caused by huge budget and tradedeficits and the failure of both the budget process and the Gramm-Rudmanlaw, they say there has been nothing in the actions of Congress over thelast sixty years to indicate that the situation will improve ("Balanced,"1989, p. 16). 61). History bears out this belief. Due to the temporary cash needs of thesavings and loan industry salvage operation, expenses are expected toexceed revenues by $175 to $2 billion. Therefore, Anderson concludes: "It was not aserious problem then and it is not a serious problem now" (p. Thus, expertsconclude, the budget deficit does matter but not for the scary reasons mosthave been hearing over the last decade. In an attempt to control the budget process, the Office of Managementand Budget (OMB) was established in 197 followed by the CongressionalBudget Office (CBO) in 1974 ("Evolution," 1989, p. If that should happen, the FederalReserve would be forced to raise rates to keep essential foreign capitalflowing into the country and spending would soar by about $1 billion foreach one percent rise in rates (Nasar, 199 , p. Robert Eisner, professor of Economics at Northwestern University, arguesthat a more liberal Federal Reserve policy would allow interest rates andthe dollar to fall, thus stimulating domestic investment and exports andreducing the deficit ("The Great," 1989, p. Should it happen again, he predictsit would cause a world recession. They then argue that new investment wouldfuel economic growth which consequently would lover the payout forunemployment compensation, welfare and other costs inherent in a slow-moving economy. (199 , February). 61). With the congressional and presidential legislative solutions to thebudget deficit problem failing, mainstream economists argue that almost anycombination of spending cuts and tax increases would help reduce thefederal government's drain on world savings. 258). The ideal of achieving abalance between expenditures and revenues has long been a politicalobjective at the federal level, albeit an elusive one. (1989, January 27). Its failure to pass the House resulted in aCongressional compromise with the 1985 enactment of the Balanced Budget andEmergency Deficit Control Act, commonly referred to as the "Gramm-Rudman."This Act established deficit targets for Fiscal Years 1986-1991 andemergency procedures for deficit reduction ("Evolution," 1989, p. News & World Report, 61. So as Congress deals with the budget deficit, it isthe Gram-Rudman deficit reduction law and its repercussions that they fear. 258). A more prosperous economywould reduce the deficit. A post-cold war budget. 61). References Balanced budget constitutional amendment. The national debt level fall after that. The United States budget and its continuing deficit has been one ofthe most persistent issues of recent years. As the financiers of the deficit, they worry that they will notgot their money back or a fair rate of return. 257). (199 , February 5). 258). Fortune, 25-28. Therefore it becomesessential to decrease the deficit so as to lower interest rates and free upinvestment money. Furthermore, the reduction in defense will be a slowprocess since over forty percent of it is tied to military and civilianpayroll and it will take years to see major savings (Brownstein, 199 , p.28). 16). This argument is countered by a multitude of other points of view.Though everyone may agree that the deficit has caused the value of thedollar to fluctuate both domestically and internationally, the ways tocombat it vary. Others have what is known as a Liberal Keynesian opinion. The great deficit debate. Thus, Washington is conscious ofthe need to cut the deficit, but the end result may include a tax hike.This is something the Bush campaign had pledged not to do. 82). In response, the international finance community continues to expressits fears. Bartley, Editor of theWall Street Journal, argues that if Congress wants to raise taxes thenforce them to also institute permanent changes which will provide forspending controls ("The Great," 1989, p. It is then envisioned that higher growth would help meet the interestpayments on the national debt which in 1989 was $24 .86 billion. By 1797, the country already bad a national debt of $83 million dueto George Washington's administration assuming the Revolutionary War debtof the individual colonies ("Evolution," 1989, p. Statingthat the budget deficit is not the number one economic problem, theybelieve it is the monetary constraints placed on business and spending bythe Federal Reserve Board that constitute America's main financial problem. 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