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MacroEcon topic is to provide an economic analysis on the US national debt and a fiscal plan to fix deficit 6.2 trillion - Essay Example

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U.S. National Debt and a Fiscal Plan to Fix Deficit 6.2 Trillion Name Institution Background and significance The U.S. national debt refers to the debts that the Federal government owes, which is close to sixteen trillion dollars at present (Paletta, 2012)…
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MacroEcon Essay topic is to provide an economic analysis on the US national debt and a fiscal plan to fix deficit 6.2 trillion
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MacroEcon topic is to provide an economic analysis on the US national debt and a fiscal plan to fix deficit 6.2 trillion

Download file to see previous pages... The debt implies that a large percentage of the total GDP of the United States falls under public debt, which hinders economic growth. It also leads to other economic hazards like unemployment and dependence on the employed people in the society. The government will also lose potential investors because they will lack confidence in the sustainability of economic growth. Various presidents have tried to adjust the debt by applying various fiscal and monetary policies (see table 1). Factors that contributed to the problem Accumulation of the debt has a historical as well as economic significance. Historically, wars between the U.S. and other nations are the main cause of the rise in the debt. For instance, the second world war of 1945 is believed to have the greatest contribution to increase in the national debt. According to treasury, the debt rose by close to 115% during this war. However, the debt reduced for the following thirty years until the past ten years when the trend reversed (Treasury Direct, 2012). The economic perspective highlights fiscal government policies as the main push factor of the increase in the debt. There have been concerns about the weakness of various fiscal policies of the Federal Government in addressing long-term economic issues. Fiscal policies are the ones that look at the way the government spends its money as well as sources of government revenue. It is clear that, in the recent years, the U.S. budget has always been a deficit budget. A deficit budget implies that the government spending outweighs the tax revenue. Many presidents of the United States share the view that reduction in taxes is the main factor leading to the accumulation of the debt. This became evident especially after the current President initiated efforts to help the government in collecting more tax revenue than in the previous years. Fiscal Plan to decrease the national debt The main aim of the U.S. government should be to increase the tax revenue that it generates from the economy. The best approach to achieve this through the application of a progressive tax system. This system allows the government to tax more on high-income earners than it taxes the low-income earners. This will help in increasing the tax revenue and it will ease the burden of low-income earners. The amount that low-income earners have for consumption and savings will increase if the government reduces the taxes of low-income earners (United States Government Accountability Office, 2012). This will increase the national output through the GDP equation. The other possible fiscal policy is the reduction of government spending. The government spends large amounts of money in financing the military as well as the social and health security of the citizens (Lee, 2012). The best way to reduce spending in the health sector is through improving the safety and prevention measures so that the amount the government needs for Medicare and drugs can decrease. This fiscal plan targets reducing the amount that the United States spends in the health and defense sectors. This is because the two sectors account for the majority of the money that the government spends. However, reducing government spending implies that the GDP of the country will decrease with time. This brings in other problems of unemployment and eventually inflation. This fiscal plan offers the Federal Government a good opportunity of reducing the debt and striking a ...Download file to see next pagesRead More
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