Why Is It So Difficult to Balance the Federal Budget – Essay Example

Download free paperFile format: .doc, available for editing

The paper "Why Is It So Difficult to Balance the Federal Budget? " is an outstanding example of an essay on finance and accounting. A budget is a formal agreement that stipulates how much revenue will be increased, the sources of this income, and how the revenue will be spent. The budget involves a policy of agreements that specifies tax laws and spending levels for specific programs. The budgetary process involves a set of rules and procedures that policymakers use to create, enact, and implement these revenue and expenditure agreements.   A balanced budget is a circumstance whereby the total revenues are normally equal, or they are larger than the total quantity of money that the government expenses.

This essay will examine the reasons why it is difficult to balance the budget.             Numerous factors make it hard to balance the budget. It comes difficult to balance the budget since it involves a change of policies that affect people from all walks of life, and also changing international and domestic spending. On the other hand, unexpected events do occur, and this leads to increases or decreases in budgeted revenues and expenditures.

It also becomes very hard for the government to try and forecast the revenues and expenditures accurately.                       Underemployment and unemployment also make it difficult to balance the budget because this makes the country not to produce as much income as it should produce since there is less number of people paying the taxes. A higher rate of unemployment increases the number of people who receive unemployment reimbursement and other forms of support that are needed to sustain them and this leads to a decline in government revenue and hence making it difficult to balance the budget.                       To balance the budget the federal government must either cut spending, raise taxes or both.

If the government resolves to increase taxes, this will make the middle-class people may be called on to make virtually all the sacrifices. About half of federal spending other than defense and interest on the debt goes for Medicare and social security both of which essentially provide benefits to the middle-class retirees. furthermore, a good part of the rest also entails programs that directly provide income to people that are regarded as deserving recipients, this includes veterans’ benefits government pensions, unemployment insurance, aid to colleges and college loans, and so on.

Another large chunk goes to federal services that nobody wants to cut, like air traffic control, crime prevention, and medical research, or that it would be hard to do without, like maintaining embassies abroad and hence this makes it very difficult to balance the budget (Sabato 58).                       The government may decide to increase taxes with the aim of balancing the budget.

The poor have very little money, so they cannot pay significantly increased taxes. The effluent can be taxed more heavily, but only up to a point, if the government imposes too high a marginal tax rate, that it takes too high a fraction of the last dollar an individual earns, this will have a serious adverse effect on incentives to work, save, and invest. And to make a tax increase fall mainly on high-income families, you must make taxes increase more steeply with income, raising the marginal rate; hence it becomes very difficult for the government to use the taxes to maintain balance in the budget.                       The government may also try to balance the budget by cutting aid to the poor.

However, spending on the poor has never been as large as the middle-class public imagines; even abolishing all such aid would fall far short of eliminating the federal deficit. Realistically any effort to close the budget gap by reducing spending must fall on programs that mainly serve the middle class, in particular, social security and medical and this makes it very difficult to balance the budget by reducing the rate of government expenditure.

Although the reality may be difficult to articulate, any serious reform must contain a hard cap on all discretionary spending going forward and the initial steps towards entitlement reform, including raising the retirement age and providing less generous social security benefits.                       Deficit financing is an important source of economic development. In deficit spending, the gap between government revenue and expenditure is filled by government borrowings that include all sources of government borrowing that is from people, commercial banks, and the central bank.

In this manner, idle saving in the country is made active. This increases employment and output. Deficit financing helps to solve the problem that an economy faces when savings are idle on the one hand and, on the other, it brings about idle employable resources available in the community. Although, there several ways that the government may use in trying to make the budget balance it is actually very difficult to make the budget balance.

Download free paperFile format: .doc, available for editing
Contact Us