US Budget Deficit Reduction Measures Since 1985

The United States has been in debt for a long period and it has been the effort of every president to reduce the debt to acceptable level. Some US presidents and the Congress has successfully decreased the debts while the country’s debt has increased under the watch of some presidents. This essay is about the measures put across by the presidents and Congress in bringing down the country’s budget deficit since 1985.

To reduce the budget deficit, various economic policy deliberations, discussions on spending and taxes, and ideas of decreasing federal budget has to be undertaken. Various state departments come together to reduce the deficit. Budget deficit is “the amount by which the federal government’s expenditures exceed its revenues in a given fiscal year which runs from October 1 to September 30” (Amacher and Pate, 2012).

Thesis Statement

The objective of this essay is to uncover endeavors utilized by the congress to decrease shortfalls in the US economy which led to budget deficits. There are various monetary and fiscal policies in play, which include taxation, employment, international trade, government spending and borrowing and an increase in economic growth.

Efforts to reduce budget deficit

Spending

The increase in budget deficit was partly attributed to Congress unlimited spending. To reduce the spending, Congress passed the Gramm-Rudman-Hollings Act in 1985 to cut on spending (Government Budget, 2013). The act led to reduction in Congress spending and this led to a balanced budget and a reduction of the budget deficit from $200 billion in 1986 to zero in 1990. Moreover, a charge on incomes cut down safety net spending, which prompts a lower obligation to GDP ratio.

The other idea of reducing budget deficit is to ensure equitable trade-offs between consumption and spending. Most of the budget choices made by the government lead to a win-lose situation evident in the way the government shares its returns. This shows that some departments benefit from the government revenues while others incur cost.

Employment

Another strategy of reducing the budget deficit is to develop policies and procedures that create employment opportunity and spur economic growth. An economy with high employment rate grows faster and reduces the deficit. A balance in taxes, fiscal policy and the level of government spending is essential to manage budget deficit. “To balance these three factors and ensure no budget deficit, then the economy need to have a budget balancing at full employment. The actual budget needs balance, but tax rates and transfer programs are set such that the budget would be in deficit only if the economy was in recession, balanced at full employment and in surplus when the economy is producing beyond capacity” (Amacher and Pate, 2012).

The other strategy used by congress to reduce the budget deficit is looking at the effects of short and long term strategies. Drivers of long term budget deficit are aging population and the inflation caused by health care plans. Short term factors leading to budget deficit are high unemployment rate, spending rates and taxation. To counter this, the Congress ensures people work past their retirement age and the implementation of health care tax plan. The congress also develops strategies that promotes rapid economic growth and reduction in future spending through freezes (Options for Reducing the Deficit, 2014).

Economic growth

The other effort is that the Congress should enact laws that promote productive investment. This is because some investments reduce the budget deficit in the long run. Investment in infrastructure, research and development and education are viable future investment plans. They make products more competitive in the market, encourage competition among workers in the US and helps create returns that brings down deficits. High economic growth leads to higher tax revenue to the government without increasing taxes. Economic growth is the best way to reduce the budget deficit as no tax increase nor a reduction in spending (Budget Deficit, 2014).

Restatement of the thesis

The budget deficit reduced between 1985 and 2002 because of congress passing regulations that controlled the budgetary allocations. It started with the balanced budget, which enabled the congress to bring together taxes to cater for spending plans therefore restricting government growth. The Congress then enacted the Emergency Deficit Act that became operational in 1985. This was later followed by the budget enforcement act of 1990. “The purpose of the 1985 act was to increase the limits of debts because the congress passed it during the duration of growing deficits. This act was to eliminate budget deficits over a period of six years. The Control Reaffirmation Act of 1987 and 1993 became extended to the 2002 Budget Enactment Act of 1997” (Amacher and Pate, 2012).

Conclusion

The congress developed various reforms and budgetary plans through legislation. This called for programs that required low spending costs or increased taxes. This was important as it led to balanced budget ideal for an economy struggling with payment of debts. The legislation is also essential because they enable the government agencies to be flexible while budgeting and reduce economic deficits essential in stabilizing the economy. During a congress sitting in 2011, the congress passed a legislation on deficit reduction. The congress also passed a tax cut extension in 2013 which advocated for higher taxes and a reduction in spending to avoid rising debts.

References

Amacher, R. C., & Pate, J. (2012). Principles of macroeconomics. San Diego, California: Bridgepoint Education, Inc.

Budget Deficit. (2014). Web.

Government Budget. (2013). Web.

Options for Reducing the DeficiT. (2014). Web.