United States government spending is usually supported by the federal budget. The United States federal budget is usually approved by the U.S congress and sets the spending limits to the federal government. Over the years U.S have displayed a continuous economic growth, but at times this trend tends to be violated by overspending and the continued use of debt to finance government spending. The paper will seek to analyze some of these negative aspects in the government spending. In addition it will analyze their impacts on economic growth, job market and taxes.
Government spending is one of the components that help in the calculation of the country’s GDP. This is because
GDP= C+I+G+NX where
GDP=Gross Domestic Product
NX=net export which is equal to exports-imports.
It is therefore a very important economic aspect that government ought not to ignore at any given time. GDP measures the economic growth in a country and it also enables proper budgetary allocation of resources within a government. For quite some times now, the U.S has successfully been able to maintain high GDP and hence it’s economic dominance. However, with the increased spending in security and Medicaid, adverse effects have continued to be felt by the American people. It is true the federal government ought to ensure maximum security of its people, but well-balanced spending needs to be maintained in order to ensure a continued economic growth. Since there is a displacement cost on spending as the private sector tends to be displaced by this spending, extra caution needs to be maintained. But the current substantial government spending in the U.S shows us that the federal government is not disturbed by the economic consequences.
It should be noted that the U.S government spending is politically stimulated since the U.S Congress must approve federal budget before actual spending. The political alignment of the leaders has all along influenced the spending direction a move which continues to be opposed by many economists. In the past the political affiliation of the congress has always decided on military and national security spending, although they do not directly benefit the civilians. More and more budgetary allocation has been made in the past and even to date to fight terrorism and other worldwide insecurities. This spending has significantly consumed a bigger share of the U.S budget and to some extent it causes some civilian resource diversion which continues to affect economic growth and job market in the U.S. likewise, the tax system in the U.S is significantly influenced by the level of government spending. This is because tax revenue is the major source of income for the government and it’s through it that most of the debt and expenditures are financed from.
As economist argues government spending tends to be burdensome whenever it becomes too large or when it’s faced with a lot of misappropriations. In such a scenario government costs usually exceeds its benefits. There are however many reasons for these, some which are short term while others are long term in nature. It should be noted that at no any given time will fail to have some adverse consequences on the economy. For instance the major source of government revenue is through taxation, while tax reduces production. The high United States tax system usually tends to reduce people’s incomes, savings and investment amounts which consequently reduce the economic production in the region. And on the other hand if the government decides to borrow in order to finance its spending, then this will have negative implications on the nation’s currency and tax payers as they will be required to pay more in terms of tax. Likewise an internal borrowing may lead to higher interest rates and in extreme cases it may cause inflation.
In the recent period, the united states military spending has gone up, a move which has continued to raise controversies within the American people. Some feels that the government is increasingly spending more on less important areas while it neglects the important ones. While the other group feels that security is vital area of investment and the government needs to lay more emphasis on. It can be noted that since 1984 military spending has been going up and with the September 11th terrorist attack similar trend has continued to be observed (Eloranta & Appalanchian State University Para 20).
Some people continued to argue that Bush administration continued to draw more resources from the civilian expenditure and were instead diverting them into military and anti-terrorist buildup. While some argue that the spending increases employment and income levels of the people, another group views that the spending can never match if a similar amount is invested in private sector or other economic sectors. This is mainly because the largest amount is usually invested on weapon and other capital investments and not on human capital. And the situation even get more worse considering the fact that this military buildup was funded by reducing civilian spending. With the growing technology and the invention of capital intensive weapons and machines, the government has continued to reduce the employment opportunities in the military sector. This is as opposed to the past where labor intensive weapons and machineries were used. Likewise, there is a major shift of focus between the current economy and the past. While in the past, military purchasing power was considered a great achievement, the same has been replaced by the government social spending. Governments are now concentrating more towards innovation and investments.
High level of military spending is mostly associated with a considerable lower rate of economic growth. This is mostly because military spending tend to push civilian investments which have a higher economic growth aside. And in the recent period military technology and space programs has become too complex to accommodate civilian applications. As a result, such spending does not impact fully on the unemployment crisis that has hit our economy in the recent times (Foster, Holleman & McChesney Para 3).
In order to reverse the negative impact on the economy, the United States government should seek to reduce military budget and shift the resources towards the civilian investments (Hudson Para 1 & 2). Such a move will have a long term effect on the country’s economic growth. Such economic diversions are necessary now that our country is experiencing slow economic growth. Some people also tend to argue that the U.S government usually fails to evaluate the economic feasibility of their spending before committing their finances.
The fact remains that all government spending are either funded by current taxation or by borrowing. Experiences have shown that whenever government tends to increase tax in order to maximize their revenue, citizens who are the tax payers suffers a lot. In actual sense, tax tends to lower people’s disposable income and their savings habit. Whenever government increases it spending it has to counter it by increasing the tax rate which has an adverse impact on civilians. It is therefore very important to consider the overall effect of an increased government spending. It is quite insignificant for the government to increase its spending on something that does not benefit the taxpayers proportionately. For instance the increase military spending does not have a direct benefit on the civilians, although some people may argue that it is aimed at ensuring the safety of the American people (Engelhardt Para 2). Government should therefore seek to spend more on health care and Medicaid improvement as it benefit the entire American population directly. And in order to boost the employment rate which is currently down due to the 2008 economic recession, the government should seek to give subsidies to the private sectors. Such a move will guarantee more employment opportunities to the American people and thus improve the overall GDP of the country.
The government should also note that financing its spending through borrowing eventually causes inflation. In addition this contributes to currency devaluation and consequently slows the economic growth of a country. Although the dollar has not yet gotten into this point, the U.S government should consider lowering its growing debt dependency as it can have a severe repercussions in future (Mitchell Para 3).
The U.S tax policy is greatly determined by government spending. This is because the government usually obtains its largest share through taxation. Additionally government spends what it has in store. So whenever the spending rate increases, it is proportionately compensated by collection of more revenue through tax. For instance, now that the United States government spending has recently continued to increase due to its military expansion, the American citizens has continued to feel the impact of this spending through the high interest rate charged on them (Gold Para 6). The spending therefore has a negative impact on the tax payers considering that military spending does not benefit them directly.
The current statistics shows that the federal tax burden in the U.S is approximately 17% of the total GDP. This is quite a high amount considering the GDP size and other countries such as China. And although the recent U.S administrations has opted to reduce the tax rate, the government find itself having a huge budget deficit which it bridges through borrowings. This borrowing accumulates interest which will eventually have to be repaid in future. This debt accumulation has an overall negative effect to both current and future generations in America. Future generation tends to carry other people’s burden which is not fair at all. It is a pity that our government continues to spend in excess of what they are able to raise and that they continue to depend more on debt to finance their budget deficit. It should be remembered that Obama’s administration also did what other presidents were doing whenever they were faced with some financial difficulty. He too decided to raise his debt ceiling in order to enable his government to borrow more to finance his high government spending. It is even worse since the largest proportional of the U.S government spending is on the military and not on civilian investments such as education and health care (Adams Para 15). In future more strict measures should be established to make sure that the government does not opt for an increase in debt accumulation but instead it should check its spending by eliminating what is not of great necessity to the people.
The U.S government has a danger of spending more on social security funds as there is a looming retirement of the baby-boom generation (Chantrill Para 1). This is an expenditure which is not productive at all, since the payment threshold will not be put into an economical use. And considering that the baby-boomers have been greatly involved in the economic production, their retirement will adversely affect the economic growth of the country. And in order to check all this unnecessary spending, the U. S government should establish budgetary restraints. Such restraints should aim at making sure that government spending is only done to the productive sectors. The government should only allow spending which sufficiently generate high rate of returns and have a higher economic benefit to the public.
The government spending needs to be closely monitored and reduced as it causes budget deficits in many countries. Nations should design an alternative method of pursuing their national security interest since doing so will greatly save their budget. This can be done through an efficient use of budgetary restraints such as fiscal policies. Fiscal policy in this case concentrates on reducing the level of government spending (Schmookler Para 7). It emphasizes much on the programs with lower benefits or those with higher costs. The U.S government should seek to minimize its military spending and instead increase the civilian investments which will positively impact on the economy and job market. It should also seek to boost the private sector through issue of subsidies, since by doing so they will be stimulating economic growth. Since government spending tends to be burdensome whenever it becomes too large or when it’s faced with a lot of misappropriations.
The government should establish effective and efficient measures by ensuring balanced budgetary operations if not a surplus. At all times government should make sure that its revenue exceeds its expenditure. In such a scenario there will be a positive economic growth, and the unemployment rate will definitely reduce. The country’s tax system will also be proportionate and affordable in order to encourage savings which further encourages growth. Although it is important for the U.S government to continue investing on its national security and fight against terrorism, it should not be done at the expense of the U.S tax payers. The government should try to strike a balance by equally investing in the other important sectors which have a direct benefit to the general public.