Taxation and Budget
Debt is the cumulative sum of liabilities which are outstanding. The national debt of the United States currently stands at 16 trillion dollars. The largest single holder of the government debt of the United States is the Federal Government. One explanation for this is that trust funds like Social Security tend to purchase government bonds. This implies that the accruing interests shift from one branch of government to another. The deficit, on the other hand, is the difference between what the state spends and what it takes in. When governments are forced to run deficits, there are periods. An example of such times is during recession because government revenues reduce, wages stagnate, unemployment increases, and government expenditure goes up. At the moment, the government debt is considered to stand at around 2% of the GDP (Video 2). The United States debt is cheap because of the US currency circulates outside the country, which is advantageous in terms of the exchange rate.
Federal expenditure often takes the form of either mandatory programs or discretionary spending. Examples of mandatory spending include Social Security programs, Medicare, and military spending (Video 2). Discretionary spending is usually directed towards government agencies and departments such as the Exchange and Securities Commission. One of the reasons why a significant amount of the budget is uncontrollable is that certain forces such as recession are beyond control. Besides, the nature of spending tends to grow progressively with time. Another reason that accounts for this is that the government lacks control on the interest rates that other countries may attach to debt. The dynamic nature of the economy also means that the government cannot have absolute control over the interest rates. Moreover, there is no centralized decision making on matters of budget as other institutions and officials also make certain decisions that affect the budget. Overall, government spending always surpasses government spending by a significant margin.
The primary source for government revenues includes personal income tax, social insurance taxes, and corporation income tax (Video 1). The government may also obtain taxes from excise taxes and custom duties. Estate and gift taxes also account for a significant amount of government revenues. However, individual income tax ranks at the top of the largest source of federal government revenue. This has been the reality since 1950. Individual income tax amounts to 47.3% of the total revenue that the federal government receives. In 2016, individual income tax represented 8.4% of the country’s gross domestic product. Recent years have witnessed an upward trend of growth in individual income tax as a percentage to the country’s GDP. This growth was particularly manifest during the economic boom of the 1990s. However, the 2007-2008 Great Recession saw a significant decline in individual income tax as a source of government revenue. Projected economic growth portends a significant growth in federal revenues.
References
Video 1. Obama Budget Cuts Visualization. https://mail.google.com/mail/u/1/#inbox/15fbb5af38b77d6f?projector=1
Video 2. Understanding the National Debt and Budget Deficit. Retrieved from https://mail.google.com/mail/u/1/#inbox/15fbb5af38b77d6f?projector=1
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