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Essay/Term paper: Budget deficit & national debt

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The purpose of this paper is to discuss the short- and long-term effects of current budget deficits and the nation debt. In order to do this; I first had to find out exactly what they were. I will also discuss whether I think the government should operate with a balanced budget.

Budget deficit is the amount by which total government spending is more than government income during a specified period; the amount of money which the government has to raise by borrowing or currency emission in order to make up for the shortfall in tax revenues.

National debt denotes the total sum of the outstanding debt obligations of a country's central government. I discovered that many people use the term somewhat more broadly to refer to the total indebtedness of all levels of government, including regional and local governments and sometimes also the indebtedness of government owned business entities such as local transit and communications systems or nationalized industries as well. The national debt represents the accumulated total of all the government budget deficits of past years, less the accumulated total of all the government budget surpluses of past years. In the United States, the national debt consists almost entirely of interest-bearing "IOU" instruments that are usually re-sellable on organized financial markets such as, for example, U.S. bonds, U.S. treasury notes, and U.S. treasury bills. These IOUs are originally purchased from the Treasury by private individuals, private corporations, insurance companies, pension funds and banks (both inside the United States and outside its borders), and the Treasury then uses the money it raised to bridge its spending gap when its budget is in deficit. The Treasury also sells IOUs to other Federal agencies that operate so-called trust funds -- primarily the Social Security Administration and other Federal retirement programs. The complication here is that since this is money that the government "owes to itself," it is not counted as part of the national debt in any realistic system of accounting. I find this to be really strange. Money to pay the annual interest owed to the owners of the government's debt instruments has to be provided through appropriations in every year's Federal budget. These interest payments on the national debt constitute as one of the largest spending categories in the budget.

Gross Domestic Product (GDP) is an estimate of the total money value of the entire final goods and services produced in a given one-year period using the factors of production located within a particular country's borders.

Running budget deficits has been a primary method for stimulating economies that have high unemployment rates. Many articles that I read indicate that the budget should return to balance or surplus during boom times. "The Reagan administration discredited this notion, cutting taxes to such a degree that the United States would face perpetually high deficits, regardless of how hot the economy was," according to economist John Maynard Keynes.

The answer does not appear to be a balanced-budget amendment, unless you want to prevent the federal government from fighting recessions. This would just make things worse, because then the federal government would be forced to make recessions worse. When the economy slows down, income and Social Security tax revenues drop, due to falling wages and profits. Meanwhile, costs for some programs, such as unemployment compensation, rise.

These changes automatically put the federal budget into deficit, even if a balanced budget had been planned at the beginning of the fiscal year. If a constitutional amendment requires the government to balance spending and revenues at the end of the year (not just in the original plan), then the White House would be forced to cut spending or raise tax rates. This would then slow the economy down, just at the time when it is most in need of stimulus.

The Balanced Budget Constitutional Amendment, Center on Budget and Policy Priorities, January 9, 1995 states that in 1962 the federal budget was $100 billion and it doubled by 1971. It doubled again by 1977 and again by 1983. It then doubled again in 1997. It also states that this year the federal government will spend $240 billion just to pay the interest on the federal debt.

Another interesting statistic found is that a child born this year will have to pay $187,000 in taxes to pay his share of the debt. Because of the federal deficit's effect on families, they'll only make an average of $35,000 a year instead of the $50,500 they'd make without it.

According to the "U.S. NATIONAL DEBT CLOCK" the outstanding public debt as of 17 Aug 1999 at 09:12:14 PM PDT was $5,635,435,597,521.14. With the estimated population of the United States at 273,277,316 each citizen's share of this debt is $20,621.67.

The National Debt has continued to increase an average of $202 million per day since August 31, 1998. It is currently $3.6 Trillion. I personally do not think that we should even entertain the notion of operating with a balanced budget. Why, you may say - because my limited knowledge of this subject indicates to me that the government has always overspent and in incapable of pulling in the purse strings.


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