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Fiscal policy of the U.S - Essay Example

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Name Tutor Course Date Fiscal Policy of the U.S The fiscal policy of the United States is important as a tool that is used to address the demand to meet the financial deficit that the US is facing and more so to avoid the country in getting to a fiscal cliff…
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Fiscal policy of the U.S
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This would mean that there are measures put in place that ensure federal states have their budgets scrutinized well and that the debt nationally remains quite stable and ensuring that it is continually on a declining path. The Bowles-Simpson plan was set up with ideology of ensuring that they reduce the deficit and achieve the American fiscal goals outlined above. This plan is based on certain key fundamental components that would help in meeting the financial deficit. The Bowles-Simpson plan recommends for an enactment of a comprehensive tax reform.

This plan focuses in reducing tax expenditure through what Bowles and Simpson described as “zero plan” which is intended to drastically cut not only the size but also the number of expenditures (Ghilarducci, 954). The main aim for America is to generate more revenue and direct that revenue to development and growth of the economy. These changes will ensure there is improvement in the tax equation that is both on the income and expenditure. This would be achieved by applying several measures among them establishing tax policy.

Implementation of a tax policy would ensure that there is a reduction in deficit especially on the federal states by making an attempt to raise more tax while cutting down on spending. This plan also aims at identifying possible areas of additional cuts on spending and revenue generations. Bowles-Simpson plan has various ways of achieving the goal that had been set out and adopted various options. As stated by Mathews et al (167), the” Zero Plan,” would work towards cutting off all unnecessary tax expenditures and save approximately eighty billion dollars yearly to cut on the financial deficit thus the revenue gains can be used to reduce tax rates.

However there would be some exemption for instances in foreign tax credit, child credit and in earnings from income tax credit. There was less common preferencing especially on mortgage interest, retirement saving and on health insurance that is employer-sponsored. The plan also intends to ensure that expenditures on corporate tax are eliminated and that there is a reduction on the same. There was the Alternative minimum tax that also required elimination. The six individual bracket tax rates currently would be replaced with a schedule that has only three brackets and increase the same to higher percentages.

Another major change would came in the wage base especially on the social security one which was to be increased with a two percent annually resulting to more than the average wage growth making it a more effective way. Gasoline which acts as a major source of income in federal states and increasing the excise tax on the same therefore would ensure that there is increase in income. While the proponents of Bowles-Simpson says that it is a remedy to ensuring that Americans reduce their debts and that there is economic revival the opponents of the same argue that this plan will reduce on net of safety programs such as Medicare and social security.

According to Matthews et al (681), the Bowles-Simpson plan’s main strategy is cutting deep into benefits in order to restore solvency to the program while causing a number of serious and adverse changes. The fact the policy failed to protect the low income earners from these drastic reductions, low income workers are unlikely to support the program because of the reduced benefits. Moreover, this policy breaks the links between the relationship between their past earnings

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