Running Head: Efforts to Reduce the Budget Deficit 1
Efforts to Reduce the Budget Deficit
Efforts to Reduce the Budget Deficit 2
Introduction and Thesis Throughout recent history, the budget deficits have been a rising issue for the United States. The budget deficits have increasingly been growing at a rapid pace throughout recent generations which has induced a high amount of stress on the American economy. Focusing on what exactly the budget deficit is as well as the efforts that have been made by Congress since 1985 to reduce the budget deficits - including the Gramm-Rudman-Hollings Act, the Budget Enforcement Act of 1990, and the Budget Control Act of 2011 - will help readers gain insight and understanding about what causes the budget deficit and what can be done to reduce it. What is the budget deficit? Many people do not quite understand what the budget deficit is and how it affects our economy. The budget deficit is a shortfall in revenue; it occurs when the government spends more than it makes during a year. When the government increases its expenditures or cuts taxes, the government budget will in turn be shifted toward a budget deficit. If the government encounters a budget deficit, it will need to borrow funds in order to cover the excess of its expenditures in relation to revenues. Greater budget deficits and increased borrowing are suggestive of expansionary fiscal policy. All of the budget deficits are the foundation of the national debt; the national debt is the total sum of all the budget deficits. According to Amacher & Pert, (2012), a deficit is the amount by which the federal governments expenditures exceed its revenues in a given year and the national debt is the cumulative total of all past budget deficits minus all past surpluses. It is the amount owed to lenders by the federal government. Government budget deficits can most likely be alleviated by placing an increase on taxes, reducing expenditures, or by implementing both of these actions. In order to finance deficits, Efforts to Reduce the Budget Deficit 3
more money must be borrowed. Eventually, the deficit will likely worsen because of this since interest will have to be paid on any previously borrowed funding. The Gramm-Rudman-Hollings Act As defined by Columbia Electronic Encyclopedia, 2013: Gramm-Rudman-Hollings Act, officially the Balanced Budget and Emergency Deficit Control Act of 1985, U.S. budget deficit reduction measure. The law provided for automatic spending cuts to take effect if the president and Congress failed to reach established targets; the U.S. comptroller general was given the right to order spending cuts. Because the automatic cuts were declared unconstitutional, a revised version of the act was passed in 1987; it failed to result in reduced deficits. A 1990 revision of the act changed its focus from deficit reduction to spending control (Columbia Electronic Encyclopedia, 2013). With Congress reserving the right to an unlimited ability to spend and the rapid growth of the national debt, many politicians were alarmed and decided to put pressure on Congress with the intentions of restricting their unlimited ability to spend. For numerous years, there was talk of a balanced budget amendment to the Constitution that would require a balanced budget on an annual basis. As a result, Congress passed the Gramm-Rudman-Hollings Act in 1985. Thus, a timetable for reducing the deficit from its amount in 1986 to zero in 1990 was set. According to Amacher and Pate, (2012), the deficit amount in 1986 was $200 billion and there were targets set for each year. Failure to meet the targets would automatically trigger painful across-the-board cuts in most federal spending programs. However, the president and Congress were required to meet the targets only in the projected budget (based on assumptions about economic conditions), Efforts to Reduce the Budget Deficit 4
not the actual budget. Amacher and Pate, 2012. For many years, the size of the budget deficits did decrease which was a result of increases in tax revenues as well as spending cuts. However, other forces that were working to reduce the deficit were offset by these results, which ended up causing deficits to begin to rise yet again. The Budget Enforcement Act of 1990 The Budget Enforcement Act made distinctive alterations to the previous legislative and executive budget deficit reduction actions. Both the approach to deficit reduction and the resources of reaching that reduction had been altered. First, the Budget Enforcement Act of 1990 improved the emphasis in the congressional budget process from controlling the progressive growth of the deficit to limiting expenditures and it also put the federal budget process on the path to faultless budgeting. It [The Budget Enforcement Act of 1990] shifts the focus of the budget process from deficit reduction to spending control, provides five-year spending totals and mini- sequesters for defense, international and domestic appropriations, and puts entitlements and revenue expenditures on a pay-as-you-go basis. The Gramm-Rudman-Hollings deficit targets have been raised substantially, Social Security surpluses taken out of the deficit calculation and allowance made for further adjustments for inflation, and other emergency spending, minimizing the prospect for general sequestration (Doyle & McCaffery, 1991). This act was passed by Congress partly to revise the budget control process of the federal government. After this act was passed, the federal budget had actually reported its first surplus since 1969 and in 1999 and 2000, the surplus nearly doubled both years (Amacher & Pate, Efforts to Reduce the Budget Deficit 5
2012). However, during the early 2000s, the United States experienced a very intense increase in government spending which mainly resulted from the September 11 th attacks as well as military operations in Afghanistan and Iraq. These events, coupled with a $1.35 trillion tax cut, forced the budget to return to a deficit basis. In fiscal year 2000, the budget had a $236 billion surplus; by fiscal year 2004, it was a $413 billion deficit (Amacher & Pate, 2012). The Budget Control Act of 2011 After much debate between different political parties regarding the anticipation of the United States reaching the debt ceiling, the Budget Control Act of 2011 was signed into law. The purpose of this act was to increase the debt limit and to also enact spending cuts gradually over 10 years while also proposing other actions to continuously reduce government spending (Amacher & Pate, 2012). Conclusion Readers should now have a clear understanding of budget deficit as well as previous efforts that have been put in place to combat the budget deficit. Efforts such as the ones aforementioned that are aimed to eliminate the budget deficit have been made in the past and will continue to be made in the future; the budget deficit is an ongoing issue that will need to be handled with great knowledge.
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References: Amacher, R., Pate, J., (2012). Principles of Macroeconomics. Chapter 10.2: The Growth of the National Debt Since 1980. San Diego, California: Bridgepoint Education, Inc. Gramm-Rudman-Hollings Act. (2013). Columbia Electronic Encyclopedia, 6th Edition, 1. Retrieved from: http://web.ebscohost.com.proxy- library.ashford.edu/ehost/detail?vid=3&sid=f274ff1a-02f6-4a9e-91d7- 950e631a0120%40sessionmgr13&hid=26&bdata=JkF1dGhUeXBlPWlwLGNwaWQmY 3VzdGlkPXM4ODU2ODk3JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aph&AN=3900 9472 Doyle, R., & McCaffery, J. (1991). The Budget Enforcement Act of 1990: The Path to No Fault Budgeting. Public Budgeting And Finance, 11(1), 25-40. Retrieved from: http://web.ebscohost.com.proxy-library.ashford.edu/ehost/detail?vid=4&sid=f274ff1a- 02f6-4a9e-91d7- 950e631a0120%40sessionmgr13&hid=26&bdata=JkF1dGhUeXBlPWlwLGNwaWQmY 3VzdGlkPXM4ODU2ODk3JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=eoh&AN=0249 376