Fiscal Administration Essay
The process of composing a federal budget that can be passed by both chambers of congress and signed by the President has proven to be a daunting task for a divided Congress. The frustration is shared by Democrats and Republicans alike and has been fueled by groups of extreme party members unwilling to compromise or find like footed ground. While Congress has so far avoided a federal shutdown with the eventual passage of the House’s Budget proposals, the fiscal debate is far from over as seen by the completion of the Budget Committee’s 2012 proposal that will be voted on in a few days.With the economy still struggling and the unprecedented build up of debt over the past decade, the stability and sustainability of the United States is under question with the fiscal cliff nearing. The budget created by President Obama and his administration has focused on the current state of the economy as a reason for a bipartisanship approach versus his traditional progressive liberalism. “In an effort to reduce the national spending deficit, which has continued to grow exponentially over the years, spending cuts of $38.
billion in education and various other programs were made by the President” (Chantrill, 2011). His proposal has received criticism on both sides of the table, as Progressives continue to argue that the cuts are too much and unnecessary if the tax rate is raised. Conservatives are enraged that there are not more significant cuts, and so the continuing debate argues the means in which the Federal Government should diffuse the deficit gap. The Progressive Liberals tend to argue in favor of Keynesian economics that promote government management to combat unemployment, inflation, and increase GDP growth.They believe that the above cuts are made possible through stimulus spending that in theory favors the economic disadvantaged through redistribution of wealth.
Any deal, all agree, would have to include revenue increases as well as budget cuts. A key question is whether any new revenue includes changes in tax rates – specifically, an end to the Bush-era tax cuts for those earning more than $250,000, which is what President Obama has been pushing and Rep. Boehner says “no” to. Currently the Liberals are hoping to raise the income tax rates from 25% to 35% for the people who make $200,000 or more each year (Silverleib, 2011).
This 10% tax increase would be the one of the highest ever-imposed in history. Currently the 25% rate is being protected by the tax cuts implemented by George W. Bush as a means of stimulating the economy through common conservative tactics known as supply side economics. “This belief suggests the most efficient way to stimulate growth is not through excessive stimulus spending but rather GDP growth as a means of natural economic stimulus.This is most commonly seen through low tax rates to the wealthy, which allow businesses and individuals to bolster the economy through investments” (Ryan, 2011). “By crippling the upper class’s ability to consume and invest more, they believe long-term economic success cannot be sustained” (Goozner, 2011).
They believe this is a way to eventually diminish the deficit over several decades. It is believed that by counteracting the seemingly low tax revenue with significant spending cuts across the board, and especially in regards to programs that are considered discretionary or inefficient, this can be done.Conservative officials blame the growing deficit on the irresponsible spending habits of Liberals, and feel that the country must now over compensate by essentially cutting expenditures to funds wherever possible. For years politicians have dreaded the retirement of the Baby Boomer generation, due to their overwhelming numbers and the financial implications of these numbers on the struggling economy.
“Social Security, Medicare, and Medicaid are projected to consume 25 percent of GDP within 75 years.Therefore, when one looks at the long-term fiscal health of the United States, there are few issues that loom larger than the growth” (Baicker, 2008). A number of factors plague the long-term survival of these entitlement programs that people depend on for retirement security and healthcare, but the most problematic factor is the cost incurred predominantly by the government. The structural inefficiencies of entitlement programs are reaping higher costs than ever before. The steepening cost of Medicare alone is a growing concern to politicians and civilians alike that is questioning and threatening the sustainability of the program. The changes in health spending per person, along with the demographic changes and the increasing number of retirees supported per worker, mean that Medicare’s long-range deficit is five times worse than that of Social Security” (Baicker, 2008). This projection has raised serious questions as to whether the government can actually make any sort of progress towards reducing the debt or spending deficit while the Medicare system continuously hemorrhages federal funds that are not sustainable. From a conservative stand point, the nature of the program will have an ill effect on the economy long term.
Therefore, reform or restructure should be encouraged by the administration. In an article analyzing historical debt in countries, the focus lies in the danger of debt that is not re-consolidated, and more specifically the negative effects that is has on a global scale. “Upward pressure on debts in the future caused by growing pension costs, when current policies reflect public debt, means paths may be unsustainable.
Without fiscal consolidation today, much harder choices will have to be made in the future” (Everaert, 2000).With rising costs of health care coinciding with the unbalanced relationship between workers and retirees, the funds supplying the “money well” are drying up and this is happening at an exponential rate. “It is not a matter of if these programs will bankrupt the current system, but more a matter of when given the status quo” (Ryan, 2011). According to a Conservative Republican that served on Bush’s administration, the economic drain they put on the budget cannot be justifiable unless one of the following policies is adopted.
The doubling of tax revenues in each bracket, or complete elimination of other government programs” (Baicker, 2008). Neither of these options would ever be considered an economically viable solution, but that is the point that Baicker seems to be trying to make in justifying the programs complete insufficiency when re-consolidation efforts are not made. Along with the 2012 budget proposal, Ryan devised a plan of reformation of Medicare and Medicaid because resolving this issue has become a priority amongst fellow conservative congressmen.
Flawed by structural and inefficient costs, they worry without changes, one of these programs could single handedly take down the United States economy from within. The 2012 Budget and the vote to increase the national debt ceiling approaches with much angst felt on both sides as these decisions have the ability to map out the future economic successes or failures within the United States. It is important to site historical outcomes and provisions in terms of policy, so the most sensible and promising strategies can be comprised with bipartisan support.
When specifically referencing historical reconsolidation of the debt ratio in countries all over the world, it is said, “Adjustment programs that rely mainly on cutting government consumption have a high probability of generating strong economic growth and reducing the debt ratio” (Everaert, 2000). Expenditure cuts (reducing transfers, public sector wages, and public sector employment) tend to stimulate a more sustainable expansionary budget when compared to tax increases which are thought to diminish public investment, “Programs that rely mainly on tax rises and government investment cuts, are expected to fail” (Everaert, 2000).Spending cuts promote effective competition more so than distorted increases in taxation, and tax increases are frequently reversed in order to prevent further deterioration of the budget and economic turmoil. In further opposition to Liberal economics, it is argued that, “Politicians need to stop thinking about everything on the expenditure side of budget as untouchable” (Bell, 2012). Mcginnis states that “tackling the delicate programs, such as entitlements, in terms of reform is essential because of their expense and ability to increase debt” (2012).With this being said, more than a decade ago, the United States experienced a rare economic surplus at the hands of income tax increases in an attempt to get a handle on the national debt. “President Clinton implemented a 39. 6% and 36% tax on the highest tax bracket and corporations respectively (with tax breaks on the lower and middle classes) which increased revenue and eliminated debt” (Morgan, 2004).
Met with opposition by Republicans, Clinton in a way disproves conservative economic logic by his accomplishments at the expense of the upper class.This helps build an argument for Liberals in the upcoming fiscal cliff since their plan of raising taxes correlates with extreme economic success. Programs under President Clinton maintained their funding without deficit spending, but there are many speculations that question the circumstantial makeup of this era.
Although these were times of prosperity, even then, it was made evident that this economy was only possible due to peacetime and full employment of the Baby Boomer generation, which agreeably could not last forever.It seems that this surplus achieved by the tax increases, but wasteful spending simultaneously increased, which carried over into an expensive wartime decade. In the year 2000, worries were established for the economic future in spite of the surplus because of the developing bad spending habits of the government and consumers alike that are still in existence today. “Congress regularly enacts spending limits, then chooses to violate these limits as it enacts a new spending cap that it pledges to follow in the future” (Nazworth, 2012).The irresponsible spending ten years ago as well as the acknowledgment of Baby Boomer retirement in the near future is cause for the predictions that spending costs would expand tenfold. Medicare would fall first and then Social Security, leaving the government to pass huge tax increases across the board or establish tremendous debt. “Unless substantial changes are made, these programs have no hope. However, the nation is not even taking moderate measures to deal with these problems” (Williamson, 2012).
With three workers, (soon to be only two) for every one Baby Boomer, the insurgence of large-scale cost demands affiliated with retirement benefits and pension plans cannot be met or sustained by this small proportion of workers to retirees. Whitehouse administrative officials are not devising a detailed reform policy of the entitlement programs because they believe, “It would only entrench partisan positions and invite attacks from the political left and the right” (Weisman, 2011).Progressives are not actively making entitlement revisions because as of now they hold an advantage over the conservatives who were inadvertently forced into creating one. Liberals can dissect and tear apart the specifics of the Conservative/ Libertarian plan that establishes spending limits and a subsidy program starting in 2022 versus full funding care for everyone. Liberals see Ryan’s Medicare plan as the first conservative step in dismantling these programs altogether. Further, the “Path to Prosperity” would be just the opposite and ultimately an immoral approach of scaling back on costs at the expense of the elderly.Many baby boomers would be severely affected by this, since they did not appropriate enough funds towards a pension plan outside of Social Insurance programs Liberals speak out to their elder constituents, warning them that they would not be able to afford the costs of medicine, or healthcare even with the simplest of needs.
“Even if they became very ill, they could be forced to forgo medical attention or help because of the expenses expectedly incurred by them” (Baicker, 2008). The progressives do not see a need for this program to be altered as long as the Bush tax cuts are repealed.Financially draining programs that seem to have a negative relationship in terms of GDP and economic growth are one of the leading contributions to continued economic turmoil during this recessional period. Conservative tactics towards reconsolidation must be followed, and should be embraced because it has been proven through history that you cannot have your cake and eat it too. If liberals demand that entitlement programs stay intact, revisions that mirror many of the conservative’s approaches must be made within the structure of these programs.The increase in the national debt ceiling exasperates both sides of the ideological spectrum, but conservatives are more passionately resistant to the increase. Currently the President along with his fellow Democrats warn Republicans that without this ceiling increase, a financial crisis will be inevitable.
“Social Security and Medicare would not have sufficient funds that are currently guaranteed to provide senior citizens with proper care, and other obligatory government costs totaling $120-130 billion each month would not be paid out” (Riskind, 2011).Many Liberals seem to understand the need for this measure. The debt ceiling vote is an opportunity to explore how to at least begin to tackle long-term federal spending issues, including the deficit “drivers” of defense, Medicare and Social Security, and the Bush tax cuts. Michael Michaud (D-ME) preaches the art of compromise as a means to solving the debt problem, “Making sure there are not Draconian cuts or huge tax increases or a combination of both” (2011).Because of the promise by President Obama to make the budget the number one priority of the current government, a raise in the tax ceiling contradicts this precedent, and tells Republicans that larger spending cuts should have been made. Conservatives need to establish a strong front in order to show the opposition how serious they are in terms of reducing the deficit, but only to make a statement for future debates. Conservative Libertarian, Ron Paul, has been questioning the increases that were justified in years past.
All they did was prevent a depression for Wall Street and gave it to the poor people,” when in reference to the 2008 bail out that in his opinion unnecessarily raised the ceiling (Williamson, 2012). Although the goal is unanimously to deplete the deficit and eliminate debt by restricting the ceiling to its current state, it would inevitably inhibit the government from “paying its bills. ” Representative Michaud provides great insight in acknowledging the importance of compromise especially in future budget debates, but also the importance of facilitating funds to programs that cannot be cutoff instantaneously.This debate should pave the way for future negotiations that will hopefully allow lawmakers to meet in the middle versus standing at opposite ends, pulling as hard as they can. Why does each side expect the other to give into their extreme ideological demands, but they fervently object when they are asked to do the same? The Federal Reserve can be abolished, or the war ended, but until government promoted fiscal responsibility is being exercised, progress will not be possible.Conservatives need to let up a quite a bit on their refusal for tax increases because the burden of the deficit cannot rest solely on cuts in education, entitlements, energy, and other important programs. Can wasteful spending be cut, and programs continue to be downsized? Yes they can to an extent, however, education is not a wasteful program and yet it faces suffocating losses in funding because of the Bush tax cuts that are limiting national revenue. Do tax rates need to increase by 10%? They need to increase, but not necessarily to that degree if Liberals and Conservatives play a role in compromise and accept legitimate spending cuts.
Even though taxation is considered a short term fix, it is a fix that when coupled with responsible spending, can set the United States economy on a straight and narrow path towards sustainability (free of debt). Policymakers have come to a crossroads this past year as they face the worst financial deficit in history combined with a crippling debt ratio that have both spiraled out of control. The negative effects of debt play a significant role in the global economy, and it is for this reason that a promising solution must be devised and put into place sooner rather than later.Although the magnitude of the situation is understood, the means of fixing it or even reversing it is not, and so politicians must use political beliefs supported by historical merit to construct a plan that is capable of actual reform. Politicians will be faced with impossible decisions and expected to make the right one, but in the name of what? When this is all over, the success or failure of this movement will be determined by Congress’s ability to prioritize the well being of the country over their personal or party interests.At some point, compromise must be encouraged and more importantly practiced by both sides in order to present a plan of action that is supported by a majority of the Congress and genuinely in the best interest of the people. The concept of looking at the bigger picture, outside the scope of personal interest, is imperative to effective decision-making.
For time sensitive matters such as the adoption of the Federal Budget by the legislative and executive, at what point does the inability to reach a solution in a time effective manner stop being an act of loyalty to liberal/conservative ideals and start being a counterproductive nuisance?