A deficit is in basic terms, a loss or the amount by which a sum of money falls short of the anticipated total, therefore, creating a shortage. Economic deficit comprises of two aspects, including trading and budget deficit. Trading deficit implies that balance of trade falls on the negative side of the scale and occurs when a nation’s imports are greater than its exports. A budget deficit can be also explained as the sum by which government’s spending surpasses its revenue over a certain period. Currently, the economy of the United States of America is experiencing a serious deficit with an estimated debt of about $16 trillion. Consequently, stakeholders have suggested many mechanisms to resolve the deficit; however, the best approach is through taxing and spending.
Increasing the federal taxes is one of the best ways to reduce the growing deficit in America. According to Riddix, “each citizen shares a deficit of about $42, 268.79 and in 2009 only; the government accumulated $2.1 trillion in taxes”. This amount is remarkably close to the federal government’s expenditures, since its budget is about $3.6 trillion. The deficit is only $1.5 trillion which can be collected if the government initiates a proper tax system (Riddix). Therefore, increasing federal taxes is an essential tool in solving this deficit because it would raise government revenues. Economists argue that outstretching capital gain, corporate and income tax would help America settle this deficit. Over the past few years, various economists and scholars have been debating over increasing income tax on the wealthy and raising value added tax in a bid to increase federal income.
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Decreasing spending is another essential tool that the government can use to reduce debt. Cutting down expenditures on government programs like Medicaid, Medicare and social security would ensure savings (Riddix). Additionally, defense and military spending takes a large portion of the federal government’s budget meaning that income generated from tax cannot keep up with the national expenditure on these programs. According to Fraser, unmanageable expenses increase on programs like veterans’ benefits, education and transportation, signifying its letdown to set budget priorities and restraint in national spending. All these programs grow faster than inflation; hence the government has to bankroll new and upcoming programs with borrowed money. This will increase deficit spending funded by borrowing and eventually lead to debt approaching the total economic output by the year 2022 (Fraser). Cutting down expenditure will force programs to make cuts and even restrict growth of some areas that are not particularly beneficial in America's economy.
Even though, a majority of American citizens are unwilling to pay more taxes or do away with certain spending programs, the government should put emphasis on reducing its expenditure, for instance, military spending. According to Intellectual Takeout, government spending increased to $3.7 trillion, with military spending amounting to $ 651 billion. Decreasing spending would significantly increase revenue, hence reduce deficit.
In conclusion, increasing tax and decreasing spending on government programs will significantly contribute towards solving the issue of the deficit. Huge spending cuts are essential to realize savings that can offset the budget debit. One possible way is to expand monetary policy by decreasing interest rates. However, this expansion should be of a great magnitude in order to achieve the purpose of reducing the soaring deficit. Although, there are some citizens who do not support the idea of increasing tax, it is another way the government could employ to counter the situation. Subsequently, controlling government spending and increasing tax should be a primary focus in a bid to solve the $16 trillion deficit.