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The National Budget Simulation

TheNational Budget Simulation

TheNational Budget Simulation

Federalgovernment has experienced budget deficits in 36 fiscal years out ofthe last 40. Budget deficit arises when government spending exceedsgovernment revenue. High government deficits affect the economynegatively and thus the need to reduce them. A country with highgovernment debt cannot invest in development projects because most ofthe country’s savings pay debt together with interest. Two maintools of fiscal policy are used to reduce the government debt. Thetools include increasing taxes and/or reducing government spending.The policies discussed in this paper involve cutting spending ondifferent projects to reduce government expenditure. A policyof reducing spending on national defense by 5 percent will lead to areduction in government expenditure. Ford class carriers used bydefense should stop being constructed because cheaper carriers areavailable. Development of long-range bomber is also not necessaryduring this fiscal year. International affairs should be reduced by 5percent because most of these affairs do not accrue economic benefitsto the country. Expenditure on natural resources and environmentshould be reduced. Production companies receive special deductionsand this should be cut to reduce spending. Government spends manyresources on transport by constructing highways. Expenses on majorroads should be restricted to user fees and other road taxes only.Expenditure on education should be cut by 2.5 percent because someassistance such as pell grants should be offered to the needieststudents only. Spending on general government ought to be reducedbecause most of the activities carried out are duplicated from othergovernment departments (National council on economic education,2012). Manufacturers of Ford class carriers’ sales willdecrease because of the policy of reducing spending on defense. Somecountries that rely on foreign aid from the federal government willhave a challenge of completing projects that depend on foreign aid.Firms that produce natural resources such as gas and oil gas willincur higher operating costs because of the withdrawal of specialdeductions from the state. Individual who owns cars and passengerswill incur more expenses in the form of user fees and other roadtaxes. Some students who used to rely on grants will find other waysof raising fees if the government cuts on education. Some of thegovernment employees will have to be laid off to reduce duplicationof work in government departments (National council on economiceducation, 2012). Federal government can also develop policiesthat cut other expenditures, but this would result into more impactto the people. Reduction of spending on foreign affairs had thegreatest impact because it cut foreign debt by 2.36 billion dollars.Many people will argue that the reduction of spending on generalgovernment is politically motivated. Some projects such as Medicareand/or social security ought to be reduced but because of thetradeoffs involved, this is not the case. Reduction of Medicare andsocial security imply there are people in the society who will sufferespecially the elderly. Cutting the above programs will lead tobenefits to the society because a reduction in the budget deficitimplies the country will pay less interest and thus more savings. Inaddition, high interest payments on debt imply reduced motivation towork and hence reduced savings. Reducing taxes or reducing spendingplay the same role of reducing budget deficit and the best policy isthe one that have less negative impact on the society (Nationalcouncil on economic education, 2012).

References

National council on Economic Education (2012). National budgetsimulation. Retrieved from:http://www.econedlink.org/national-budget-simulator.php