Budget of the United States of America - Report Example

Budget of the United States of America Politics is the main culprit, with regard to the budgetary problems being experienced in the US at present. The following discussion proves this contention. As per Paul Harris in New York Reports, the condition of the US is quite depressing. It is undergoing a strengthening deficit, unemployment levels are at 9%, the economy is on the decline and China is steadily but surely increasing in strength. Even these dire straits have failed to unite the endlessly squabbling politicians. The Democrats consider Barack Obama to be an overwhelming failure (Harris, 2011, p. 38). Similarly, the Republicans have selected Mitt Romney as their candidate for the 2012 elections; and this is not to the liking of the conservatives. As such, the Republicans have fielded candidates who are grossly substandard (Harris, 2011, p. 38). In comparison with China the economy of the US is declining. This is the result of having voted an incompetent and ineffective President to power, as stated in this study. The general perception is that the system of governance in the US is ill equipped to address various problems being faced by the nation. The various checks and balances in the system seem to have crippled the entire framework. This inadequacy has been recognized at the international level, as evinced in the Standard & Poor’s downgrading of the US rating. This rating agency categorically stated that there had been a significant weakening in policymaking and the political institutions of the US (Harris, 2011, p. 38). Elections in the US are influenced by money to a great extent. This has been coupled with a permanent campaign way of thinking. Thus, a considerable amount of money has to be spent by an election candidate. Industry has emerged as the most convenient source of such funding in the US (Harris, 2011, p. 38). In return for funding industry demands several favors and this has proved detrimental to the economy. The scale of the money involved can be estimated from the fact that in the year 2010, lobbyists incurred an expenditure of $3.5 billion, during the course of their activities. The corresponding amount in the year 1998 was just $1.4 billion (Harris, 2011, p. 38). This gross increase in expenditure reveals the despicable role played by politics. As such, politics was instrumental in generating the economic downtrend of the US. According to a news article by Kevin Carmichael, Obama made a proposal to contain the enhancement of taxes, by withdrawing troops from Iran and Afghanistan, and thereby reducing expenditure. Profits from business attract a tax rate of 35%, which is one of the highest in the world. In comparison, Germany imposes a tax of 16% and Canada 17% on business (Carmichael, 2011, p. A1). The Obama regime is not in favor of reducing this exorbitant rate of taxation. In fact he had proposed a $2 decrease in expenditure for every $1 increase in taxes. In order to lend credence to this claim, his administration has included the $1 trillion that it expects to save by withdrawing from Iraq and Afghanistan (Carmichael, 2011, p. A1). Decreasing the budgetary allocation to the army will not provide relief from the enormous rate of taxes. As such, political will has caused untold damage to the US economy. Several economic experts have cautioned against adopting this approach to balancing the budgetary deficit. Specifically by the year 2035, the tax revenue as a proportion of the GDP could increase to an unprecedented 23% (Carmichael, 2011, p. A1). This is truly alarming, and a political consequence. The appalling economic situation in the US has prompted the US President to diminish the military budget substantially. This is expected to reduce the budgetary gap significantly. In addition there are plans to limit program spending and to decrease health care costs. This initiative by Obama was a counter to the Republican budget proposal (Mascaro, 2011, p. 1). Republicans were more ambitious and had envisaged a reduction in expenditure to the extent of $6trillion over the next ten years. One of the measures envisaged were to hand over Medicare for senior citizens to the private sector. Furthermore, it was proposed to diminish Medicaid for people belonging to low income groups and to fix a compulsory upper limit on program spending. In other words, these recommendations would usher in the demise of the familiar Medicare and introduce a new system that would not be of much benefit to the populace (Mascaro, 2011, p. 1). In order to find common ground with his Republican detractors, Obama invited the latter to hold talks aimed at working out a compromise on the 2012 budget. Obama has declared that he would effect the following measures that would reduce governmental spending. First, a $770billion reduction in discretionary spending, which includes the areas of administration of justice, energy, health and education. Second, a $400billion reduction in expenditure on security (Mascaro, 2011, p. 1). Third, reduction in health care program expenditure to the tune of $180billion. This would involve greater concentration on limiting cost growth and the exorbitant amounts spent on prescription drugs by Medicare. Fourth, in the area of mandatory spending, the expenditure to be reduced is envisaged at $360billion. This is to be realized from savings on obligatory expenses, such as agricultural subsidies, antifraud measures and the federal pension insurance system (Mascaro, 2011, p. 1). Funding for Medicare and Social Security is on the basis of contributions that are calculated as proportions of wages. The recession in the US has effectively affect wages. Reduction of expenditure in respect of medical care and social security will indirectly affect the economy by reducing the productive capacity of the populace. According to a news article by Christina D. Romer, a wide array of analysts have concurred that the ever increasing expenditure incurred on health care constitutes the principal reason for the alarming deficit projections. Realizing this fact, Obama accorded the greatest importance to cost control with regard to health reform legislation. Another area of escalating costs is that of military spending. There has been a phenomenal growth in this area, since 2001, and such spending has to be reduced substantially (Romer, 2011, p. 12). Simultaneously, investment in infrastructure projects, education and research has to be enhanced, as this promotes productivity. The latter has been seen to improve the budget situation and the standard of living. Furthermore, taxation has to be increased, as even the most drastic of reductions in governmental spending cannot successfully address the budgetary deficit (Romer, 2011, p. 12). Moreover, some realistic proposals have been forthcoming from the fiscal commission. This entity has recommended changes to the tax structure, which would reduce marginal tax rates and tax expenditures. It is important to realize that such changes have to increase tax receipts. The state of the economy provides considerable cause for distress (Romer, 2011, p. 12). For instance, the rate of unemployment is 9.4% and the economy is afflicted with a dismal lack of demand (Romer, 2011, p. 12). The need of the hour is to enact legislation that reduces the deficit in a gradual but unrelenting manner. However, hasty decisions regarding health care and military expenditure may worsen the economy. The US efforts to energize the economy could have an adverse effect on the dollar. The latter could reduce in value in a dire, unexpected and disrupting manner. This could be in addition to the existing steady decline in its value. Over the past ten years, it has declined by 36% in comparison to the six other major currencies. The absence of political consensus regarding the manner in which the budgetary deficits are to be reduced could dramatically hasten the decline of the dollar (Irwin, 2011, p. A15). Consequently, lack of political will in reducing budgetary deficits has caused a steady decline in the value of the dollar, in comparison to the other major currencies. It can be surmised from the above discussion that politics is the chief actor, with regard to the budgetary problems being experienced by the US. Lack of consensus among the politicians, with respect to making decisions over important issues like taxation, health care, education, social security and military expenditure has an enormous effect on budgetary deficits. Obama has adopted the pernicious practice of reducing health care benefits, social security and national security, under the guise of reducing the country’s expenditure. This is incorrect, as this expenditure ensures the wellbeing and safety of the populace. Diminishing such benefits will result in an unhealthy and insecure society. Politicians should abstain from providing incentives to business, in return for funding in elections. This provision of incentives to business will definitely result in a situation where governance has to compromise with its plans, making it solely beneficial to the business community. As such, politics is the chief actor in making the budget problematic and thereby affecting the economy of the US. List of References Carmichael, K., 2011. Obama's vow: Tax hike or veto. The Globe and Mail (Canada), 20 September. Harris, P., 2011. In Focus: US politics: 'We are better than this': paralysis at the top leaves US voters desperate for change. The Observer (England), 20 November. Irwin, N., 2011. The dollar, at risk. The Washington Post, 4 May . Mascaro, L., 2011. Tax cut debate opens rift in the GOP. Los Angeles Times, 9 December. Romer, C. D., 2011. Obama focus needs to be on deficit. The International Herald Tribune, 15 January. Read More