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The federal budget deficit - Research Paper Example

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Research Report By: 10th Nov, 2013 Federal Budget Deficit The budget deficit occurs when government’s spending outweighs its outlays. The deficit results in a national debt that needs to be borrowed and steps need to be taken in order to reduce the future deficits…
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The federal budget deficit
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Download file to see previous pages The US budget picture has evolved through leaps and bounds. The current federal deficit for the government went down by 37% from the previous years pictures. The decline in the fiscal deficit shows improvement in the economy. But is the decline in the deficit figure enough for the economic longevity and prosperity? What factors can help in improving the deficit picture of the country? We will conduct an analysis to comprehend the federal budget deficit situation and find answers to the above questions. The US deficit has not always been in a bad shape with the 19th century showing surplus figures and holding deficits only during wartime. Initially the deficit was very small with numbers peaking in the World War 1 and 2. During the 1960s till the 1990s there can be seen a steady increase in the deficit. The deficit crossed the ten percent GDP barrier owing to the crises that hit the economy in the year 2008. The movement of the federal deficit can be seen from the graph below: (Usgovernmentspending.com, 2013) Now looking at the deficit scenario one needs to understand the current market implications and the forecasted figures of the federal budget deficit. ‘The federal government took in $680 billion less revenue than it spent, or about 4.1 percent of gross domestic product. In 2012, those numbers were $1.087 trillion and 6.8 percent of GDP. That means the deficit fell a whopping 37 percent in one year.’ (Irwin, 2013) The reason behind the figures for the year 2013 is the increase in the government receipts due to the high payroll taxes that are a result of the increased income. The effect of this is the decrease in expenses is terms of unemployment insurance benefits that decreased with the improving economy. The US economy has cut its fiscal tail in order to achieve the results. But one can argue that the decline in the federal deficit is very rapid. The austerity measures taken by the government has taken a deficit that was 4.5% in the first quarter of the this fiscal year to a 3% when the figures were published at the year-end. According to many economists the drastic measures by the government cannot improve the economy in the long run. The economy needs to grow at a steady pace keeping all its factors of production in line, leading to a better and positive growth of the country. ‘Goldman's projections indicate that simply allowing the economy to grow will result in significant deficit reduction without painful spending cuts.’ (Carter, 2013) Comparing the US economy with Greece and the like shows that the position of the economy is not alarming but a fixture is required in the near future. The President has laid a budget that does not tackle the federal budget deficit in its entirety; he has set a commission in order to obtain ideas as to bridging the gap between the public revenue and expenditure in a more meaningful manner. The effects of these changes have to be long term. The economy needs more than just an yearly decrease in the federal budget deficits. The decrease in the figure is good but not enough for long-term survival of the economy. The recent shutdown of the government offices show that deep down the picture is not that simple and although the economy has recovered from the downfall and crunch much needs to be done before it is stable in terms of growth and activity. The changes in the US economy are evident with improved standard of living and better job opportunities in the country. But along with the positives ...Download file to see next pages Read More
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