Innocuous Spending

In several years in the past the federal government did not collect as much money as they spent (Mikesell 2003). This is said to be due to economic expansion and economic decline (Mikesell 2003). However, this causes the government to borrow money to make up the difference (Mikesell 2003). The known term for spending more money than what is taken in, is known as a Budget Deficit (O’Sullivan and Sheffrin 2006). Political issues and economic policies arise from the size of the governmental budget deficit (Wikimedia 2006). Many people and fiscal officials promote a balanced budget while disapproving deficit spending. “Deficit spending occurs when a government, business, or individual’s spending exceeds income (Wikimedia 2006).” Ultimately, any deficit must be paid back. Though the United States Government would rather forgo a deficit rather than raise taxes or constrain spending (Hummel 2002 and 2006).

In 2000, the federal funds had a surplus, meaning the government was taking in more money than they were spending (Mikesell 2003). The last known account of a federal surplus was in the 1960’s (Wikimedia 2006). However, by 2001 the United States was back in a deficit due to the tax reduction and the recession that began in March of that year (Mikesell 2003). Usually deficits occur during times of war of catastrophic events (Hummel 2002 and 2006). The war of 1812, the Civil War, the Great Depression, and World War 1, all produced a deficit for the United States government.

As the war on terrorism began in late 2001, the economy of our nation has struggled and the federal government spending increased dramatically, placing the United States in a deficit of enormous proportion (Mikesell 2003). Most of the deficit spending went unreported and the fiscal discipline of our country is slipping away (Hummel 2002 and 2006). According to the budget estimates of the past five years, homeland security, defense spending, and tax cuts played a major role in our recession (Hummel 2002 and 2006). Government spending and tax cuts have abolished a 2.25 trillion dollar surplus and the economic downfall has eliminated about 1.7 trillion (Chait 2003). The government and Congress are not totally to blame law makers say (Chait 2003). Voters of this nation agreed with the emergency spending after the September 11, 2001 attacks (Chait 2003). All the politics has made it easier to have a running deficit (Chait 2003). Since Congress and the President assume that the public would protest higher taxes and consent to federal expenditures for service programs (Mikesell 2003). Balancing budgets or bringing about a surplus is difficult work to say the least. That is why politically it is much easier to maintain the deficit (Hummel 2002 and 2006). Though the House and the Senate endorsed the tax cuts, farm bill, and prescription drug plan by President Bush, not all are supporting the idea of new deficit spending (Hummel 2002 and 2006).

A running deficit causes effects that could seriously be long term (Mikesell 2003). Since the capability for production is close to maximum in our country, the deficit is seen as an appalling trend by some citizens (Mikesell 2003). The threat to the economic growth and the fear of the reduction in our national productive capacity has many doubting the benefits of a running deficit (Hummel 2002 and 2006). Not only are national savings at risk of being used to finance investment and/or accommodate the deficit, the international markets are using our debt to their advantage (Hummel 2002 and 2006). When the United States borrows from foreign countries to try and reduce the deficit, the interest rates in the United States rise and reduce the supply of domestic savings (Mikesell 2003). Foreign investments tend to reduce the effects of the deficit while at the same time enhancing domestic saving (Mikesell 2003). At first this didn’t seem believable, though after thought, if the United States doesn’t increase taxes citizens are able to save more. However, my opinion is that citizens may not be able to save since many of our jobs are being sold to foreign companies so they will help us with our debts.

Thus, the extent of the total deficit still remains a political issue (Mikesell 2003). The deficit can impact how the federal government will try to solve the problem, because the impact of the response is the most important to voters (Mikesell 2003). The political debate on what is the best way to turn the deficit around can play a major role in who is elected. Because running deficits bring higher interest obligations to the future, current needs of the public are pushed aside by the obligation to pay the interest and costs of the past (Mikesell 2003).

The Congressional Budget Office pointed out that the latest budget standing, estimated “one out of every three dollars the federal government spends this year, outside of the self-funded Social Security system, will