Federal Budget Deficit - Term Paper Example

Federal Budget Deficit Introduction The Congress adopts laws, makes declarations of war and acts as anoverseer of the executive and judicial branch but its most significant annual duty is to craft the federal budget which determines how federal revenues will be allocated. More $3 trillion this fiscal year, generated primarily from tax income, is portioned out to everything the federal government funds. A small list includes the national defense, space exploration, health care, farm subsidies, veterans’ affairs, FBI, CIA, HUD, FDA, EPA, on and on. If Congress spends more than is collected, the country incurs a debt and must borrow money from foreign countries, mainly China, to remain operational. At present, the national debt is $8.8 trillion and is increasing at nearly $2 billion per day (Hall, 2007). If Congress does not control its overspending through measures such as passing a balanced budget amendment to the Constitution and adhering to it, the country’s economic future is in deep peril. This discussion will provide an overview of the federal budget process and outline the disastrous consequences of continuing to be a debtor nation. Federal Budget Primer The President submits a proposed budget to Congress in early February for the coming fiscal year that runs from October 1 to September 30. The President’s budget request to Congress accomplishes two main objectives. First, it relays the President’s opinion of how much should be taken in via taxation and how much should be spent. Second, it prioritizes the President’s present and future federal funding desires. “The budget typically sketches out fiscal policy and budget priorities not only for the coming year but for the next five years or more” (Coven & Kogan, 2006). When Congress receives the President’s budget, it usually conducts hearings to discuss many of the requests before developing a budget resolution. This is the budgetary parameters that Congress will work within when making their determinations regarding taxes and spending. The budget resolution, drafted by both Senate and House Budget Committees includes both mandatory and discretionary spending goals. Following committee approval, the resolution is submitted for a vote and possible amendments by the entire membership of the Senate and House. Afterwards, a joint House-Senate committee is convened to resolve any disparities in the resolution of the two versions passed by each house of congress. The resulting joint report is sent back to both houses for a vote. Congress can choose to employ a procedure known as ‘reconciliation’ as described by the Congressional Budget Act of 1974.  It was designed as a method of requiring congressional committees to cut spending or raise taxes so as to balance the federal budget. “While the reconciliation process was intended as a deficit-reduction mechanism, it has been used several times during the Bush Administration (in 2001, 2003, and 2006) to pass costly tax-cutting legislation as well” (Coven & Kogan, 2006). A Looming Crisis If the National Debt of the United States cannot be described as a situation experiencing a crisis then little else can. At its greatest level in history, the current deficit provides the economy with a small boost, but if allowed to continue on its path of projected growth, deficits will eventually result in the lower standards of living caused by a sustained stagnation of the economy. Citizens will also be deprived of various government programs such as those targeted at the economically disadvantaged – a state many more people will experience if the current trend is not reversed. Other government funded interests such as education, military and infrastructure will suffer greatly as well. How High and Why How it Began According to the Commerce Department, the yearly payment on this debt, the deficit, will reach $1.3 Trillion this year. The National Debt may reach past $11 Trillion after the Obama administration tries to spend the nation’s way out of its current deep recession. This figure is well past most peoples’ comprehension. If, for example, a person were to spend a million dollars a day since the birth of Christ, they would have to continue the spending spree for 700 more years to have spent one trillion dollars. Multiply that amount by eleven. Started in 1791, the national debt was, by those days’ standards, an incredible $75 million. Due to President Andrew Jackson’s prudent approach to government spending, the national debt was lowered to, again adjusted to today’s standards, a much lower level – $37 thousand (Suter, 2004). Where We Went The Reagan/Bush administrations of the 1980’s ran the debt up by historic proportions. When President Clinton took office in 1993, the debt stood at $2.4 trillion. The massive increase of debt was not used for infrastructure, education, public programs or even to finance a war. As a result of Reagan’s ‘trickle down’ economic theory, the money wound up in the pockets of the rich. In the early 1990’s, Congress adopted a ‘pay-as-you-go’ policy and federal spending cuts which resulted in budget surpluses for four consecutive years. Clinton announced that the nation could pay off the debt by the year 2013 if it stayed on the present course (Schoen, 2006). Where We Are That optimistic predication has long since been forgotten. Since 2000, the debt has tripled. The ‘pay-as-you-go’ policy expired in 2002 allowing Congress to cut taxes, a politically advantageous move while also increasing spending (Schoen, 2006). The former President Bush administration cut the taxes of the rich while increasing military expenditures on The War on Terror, invasions of Iraq and Afghanistan and the rebuilding of those countries. The debt more than doubled even the Reagan administration’s record levels at the end of the Bush (W) administration. It has severely hampered America’s ability to continue to effectively defend itself or become involved in other potential conflicts worldwide. “There is a growing concern about what the increasing U.S. national debt will do to the nation’s ability to influence world affairs” (Suter, 2004). Selling our Financial Security In this time of increased globalization of the world’s financial markets, American legislators are more easily able to borrow from other countries that are experiencing a surplus of money. The United States is regarded as a good investment and has an unlimited ability to secure loans without a problem, but loans must be paid back, with interest. Germany, Japan, China and other countries own a large piece of America, a potentially disastrous prospect. For example, in February of 2005 the nation’s seventh largest creditor with $53 billion in holdings, the Bank of Korea, revealed that it intended to “diversify reserves out of U.S. dollars” (Hirose, 2005). The Dow Jones dropped 174 points and the dollar lost significant value that same day. What if tomorrow, a major U.S. creditor lost confidence in this nation’s ability to honor the debt or decided to exert political influence by means of economic threats related to the debt? Taiwan, China and Hong Kong combine to control more than $360 billion (“America’s Foreign Owners”, 2006). What if they all united against the U.S.? It probably won’t happen anytime soon but the fact that it could happen should be enough to alert Congress to the crisis. Conclusion One or a combination of creditor countries could cause a sudden and shocking reduction of the economy which would further increase the debt. Interest rates would rise causing a real estate market crash and businesses couldn’t borrow money as easily (Ince, 2005). The U.S. is a debtor nation of enormous proportions. That in itself is a crisis waiting to happen but the fact that it is subject to the political interests of foreign countries isn’t the immediate crisis. Bill Clinton told CNN in a 2005 interview that the United States depends on Japan, China, Britain, Saudi Arabia and Korea “to basically loan us money every day of the year. I think it’s wrong” (Stephanopoulos, 2005). Although Congress, much the same as businesses and individuals, should be obliged to balance the federal books, the national debt continues to rise. If this trend is not reversed, the lifestyle that is enjoyed in the U.S. will evaporate as it quickly becomes another third-world nation. The issue of pork-barrel spending described as when Congressional Members ‘earmark’ monies over and above the budget resolution constraints so as to fund projects in their home district or state, is generally considered wasteful spending. Congress will not be able to reduce the debt unless all earmarked spending bills are fully transparent to both Congress and the public or by greatly diminishing the practice altogether. The nation at present is facing many crises including the economy recovery efforts, war in Iraq, illegal immigration, health care, etc., but the one of most importance is the national debt. It alone could tip the balance of power in the world. The U.S. would follow the lead and policies of other nations and be plunged into a third-world-like economic status. Maybe the most troubling aspect of the debt is that it is future generations of Americans that will be most affected by the greed of the present generation. President Obama has promised that in spite of all the spending his administration is obliged to do during this economic crisis he will cut the deficit by one-half by the end of his first term. The future of the country depends on if he can. Outline: I. Introduction II. Federal Budget Primer III. A Looming Crisis IV. How High and Why A. How it Began B. Where We Went C. Where We Are V. Selling our Financial Security VI. Conclusion Works Cited “America’s Foreign Owners.” The Trumpet. (September 22, 2005). Philadelphia Church of God. April 27, 2009 Coven, Martha & Kogan, Richard. “Introduction to the Federal Budget Process.” Center on Budget and Policy Priorities, (November 6, 2006). April 27, 2009 Hall, Ed. “U.S. National Debt Clock.” (March 12, 2007). April 27, 2009 Hirose, Taizo. “Dollar Declines as Bank of Korea Plans to Diversify Reserves.” Bloomberg.com. (February 22, 2005). April 27, 2009 Ince, John F. “America’s Debt Time Bomb.” Infoshop.org. (December 2, 2005). April 27, 2009 Schoen, John W. “Why is the National Debt Out of Control?” MSNBC. (2006). April 27, 2009 Stephanopoulos, George. “Clinton: Bush Should Raise Taxes to Pay for Recovery.” CNN, Politics. (September 19, 2005). April 27, 2009 Suter, Keith. “The Next International ‘Debt Crisis’ is in North America.” Online Opinion. (June 30, 2004). April 27, 2009 Read More