American fiscal policies and economic growth
Fiscal policy refers to the use of taxation and expenditure to impact on the economy of any country. Specifically, an economy of a country relies on the major instruments of fiscal policy which entails government expenditure on the various sectors of the economy and changes in the taxation system. As a result of the changes that the government can make on the two components for example through the ministries of finance or planning, various macroeconomic variables can be affected. These include income distribution, aggregate demand and allocation of resources. Apart from taxing the residence and non-residence, government expenditure can be funded through various other mechanisms. These include selling of fixed properties such as land, borrowing locally or globally and seigniorage among others. The three major stances of fiscal policy as indicated by Hansen 36 include contractionary, neutral and expansionary fiscal policies. Based on the wide range of activities that the US government spends funds on including security, healthcare, education and transport among others, it has to ensure that it has to ensure it has effective ways of collecting revenue. This paper will discuss American fiscal policy and economic growth.
In its effort to increase annual revenue and effectively provide public goods to its citizens, the US government has put effective taxation policies. Being set up on state as well as federal levels, US government has set up various taxes through which residents and non-residents are in a position to contribute to the economic growth of the country. Examples of taxes include capital gains, sales and income tax. Even though the major source of government is tax, federal taxes ...
... middle of paper ...
...t has been able to effectively collect high revenue from the large number of workers. Through the regulations such as the 1986 Tax Reform Act, the US government aims at curbing tax evasion which is a major challenge facing many countries. US economy is faced by challenges such as high wealth inequality and high expenditure in the sector of defense. This has made the budget to run in a deficit some years now. High revenue that the US government collect annually, has made the country to initiate various industries and research centers that have resulted to improved economy. Additionally, the increased number of wealth individuals has resulted to establishment of many small businesses that acts as a major source of employment. This has led to increased household income creating a high demand for goods and services produced by the country as well as the imported ones.
Our current system of taxation is a varied rate percentage based on different income brackets. Many say that it violates our constitutional rights through unequal taxation. Multiple deductions, loopholes, special rates, and a complex system of regulations all characterize our Federal Income Tax System, prompting many to question why it is still being used (Peters, 2013). The current system although bringing in over $3 trillion, taxes income multiple times, and includes the taxing of estate, labor, savings, and investments (National Priorities Project, 2013). The system itself is complex with over 20,000 pages of regulations, requiring a massive filing system, which is set up and maintained by an even larger IRS, requiring over $225 billion in compliance costs (Hall, 2001). One can be hard pressed to find an advantage in the current system, other than the fact that it provides the government with an enormous amount of funds, and it has...
Federal tax laws are run by Internal Revenue Service (IRS) which is an agency under the U.S. Treasury Department. The federal government makes $2 trillion in revenue each year through taxes and borrowing. Money is borrowed by selling federal securities, which include bonds, notes, and certificates. Savings bonds are the most popular, for that investors are able to receive interest on the money they lend to the government. There are many different kinds of taxes administered by the government which tax individuals, companies, programs, luxuries, and international goods. Individual income tax makes up for over half of the government’s income each year, in which the government takes a portion of the citizen’s income based on how much money they earn. This type of tax is a progressive tax which means it’s based on the person’s ability to pay, being that wea...
Fiscal responsibility is an important part of stability and the government must focus on maintaining the economic stability. As we all know, Government dept can quickly become a burden on the economy and weaken it. Macroeconomic policies change credibility of the government and strengthen political institutions. It is very important that our economy has credibility and stability because it’s vital to us Americans long term investment decisions that allow the US economy to grow. Government provide stability by ensuring to maintain stability of currency, enforce-defend property rights, and provide oversight that assures private citizens that their transaction partners in marketplaces are accountable.
Fiscal Policy is described as changing the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand; these are designed to increase short-run economic growth. In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending. By cutting taxes, increasing government spending programs, and increasing transfer payments, more money is in the economy, more income, and more spending. This can be done through the federal budget process; however, the problem with fiscal policy is lag time. This process can take so long (as long as a year or more) that Discretionary Fiscal Policy is very rarely used in the federal governmen...
Stratmann, Thomas, and Gabriel Okolski. "Does Government Spending Affect Economic Growth? | Mercatus." Mercatus. 10 June 10. Web. 20 Nov. 2011. .
Fiscal policy uses changes in taxes and government spending to affect overall spending and stabilize the economy. When lowering taxes the people have more to spend then the government decreases spending and the economy slows down therefore the economy stabilizes. The objective of fiscal policy is the governments’ typical use fiscal policy to promote strong and sustainable growth and reduce poverty. During periods of recession congress has the option to decrease taxes to give households more disposable income so they can buy more products. Therefore, lowering tax rates increases GDP.
Taxation has always been a major controversy. Just like any major corporation, the government is constantly looking to raise revenue. The easiest and fairest way to do this is by taxing the people. However, how the people will be taxed is always an issue.
Monetary and fiscal policy and their applications to the third world countries with a huge informal sector
The reduction of government role in the economy will affect fiscal policy by decreasing deficit spending a...
The use of taxes is one of the government's favorite ways to make its presence known in the economy. While this method seems blatantly obvious, many of the ways the government uses the money collected by taxation is not. Some of the money it takes is used to fund other programs designed to "protect" consumers and to "create" jobs. Be...
Taxation can be taken as a major type which helps to increase the income of a country. In Australia too, taxations are asked to pay not only for the local state, but also for federal governments. It can be paid as personally or as a company.
The subject of controlling the national economy presents professionals and ordinary citizens alike with fodder for lively discussion and debate. It is also a topic whose popularity ebbs and flows with the times. The focus in recent years has been on the use of monetary policy. But do not tell that to the politicians. Some people will not let go of what they are familiar with and to what gets them votes. So Congress and the President constantly battle to find the most “correct” fiscal policy to pursue given their assessment of the economic conditions at any point in time. And therein lays a potential weakness in the argument that favors the use of fiscal policy to smooth the troughs and peaks of the United States economic machines.
Everyone has their own political leaning and that leaning comes from one’s opinion about the Government. Peoples’ opinions are formed by what the parties say they will and will not do, the amounts they want spend and what they want to save. In macroeconomic terms, what the government spends is known as fiscal policy. Fiscal policy is the use of taxation and government spending for the purposes of stimulating or slowing down growth in an economy. Fiscal policy can be used for expansionary reasons, which is aimed at growing the economy and increasing employment, or contractionary which is intended to slow the growth of an economy. Expansionary fiscal policy features increased government spending and decreases in the tax rates as where contractionary policy focuses on lowering government spending and increasing tax rates. It must be understood that fiscal policy is meant to help the economy, although some negative results may arise.
During the time of economic crisis starting around 2010 different rationalities have been taken to try and continue economic growth while maintaining a stable government system that is helping and not hurting. When examining government spending and how it affects the growth of the Gross Domestic Product (GDP) there seems to be disagreements on if it was helping or damaging the prospective growth that could be made. By using the Multiplier Effect the government can estimate how to adjust their government spending and how it effects the spending of the consumer, investments and spending of country’s exports.
After analyzing the data and the theory, we have provided our conclusion weather tax cut is better for the stimulation of growth or Government spending is? This report explains the big macroeconomic debates of the present times. It seeks to explore the debate within fiscal policy itself between tax cuts and government spending. We have tried to explain the argument through some theories and through some data collected from Indian econ...