The U.S’s debt level surpassed gross domestic product by 100%. The budget deficit increased due to the fact that the country tried to mitigate the effects of financial crisis in 2008. Indeed, the recession was prolonged and relatively deep. However, it is important to recognize that U.S’s deficit problem began four decades ago. This implies that the 2008 recession brought the U.S’s budget deficit to the public attention. The problem came as a result of increasing the government expenditure without corresponding to tax revenue. The paper discusses various aspects of the U.S government revenue and expenditure in order to understand different aspects of budget deficit.
The US government deficit is essential in understanding the current deficit problem. The problems contributing to the national deficit include financial crisis in 2008, the precedent financial behaviors, and deficit relative to GDP. The government allocates more money in areas such as defense spending, social security and Medicare, interest paid on the public debt, other federal expenditure, and other payment to individuals. Birkland (2014) argues that Social Security and Medicare, and other payment to individuals contribute to high level of budget deficit compared to defense spending. This is because Social Security and Medicare form part of the mandatory spending hence affecting the national income. Eichengreen and Gupta (2015) noted that the decline in discretionary spending in relation to government expenditure matches an increase in mandatory spending. In fact, discretionary spending decreased by 48% to the 36% of the total government spending. Therefore, so long as t...
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...itutions such as World Bank and International Monetary Fund spread loans through a long period of time. This increases the interest rate thus affecting the country’s income. Birkland (2014) argues that that high dept has caused unemployment and lower salaries in U.S. This is because investors fear investing in countries where the tax is high. In addition, the poverty level in U.S has increased (Bellofiore, 2013). This is because financial institutions ask for high interest rate on individual borrowing and mortgage. In fact, organizations investing in U.S are perceived to be riskier in the global market. This makes it difficult for foreign investors to build confidence in the country. According to Eichengreen and Gupta (2015), debts affect the economy in the long run; therefore, taking the right approaches to limit expenses will spur economic growth and development.
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