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Treacherous domestic predicament | Assignment

   

Added on  2022-09-15

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ECONOMICS 1
Name
Professor’s Name
Economics
Date
PART A
The most treacherous domestic predicament that the United Sates of America’s federal
government is facing currently is the rapid increase in its national budget deficit with an
increased national debt. According to Office of Management and Budget (31), by end of the
fiscal year 2018, the USA had a total budget deficit of approximately $779 billion while its total
federal spending was at $4.1 trillion. However, this contradicted the national total revenue which
was approximately at $3.3 trillion. In comparison to the financial year end of 2017, the national
budget deficit increased at 17 percent which makes it the highest federal deficit since the
financial year of 2012.
According to Schaefer (457), the best way for a government to increase its tax base is
through moderate taxation to the middle class and increasing tax rate to the rich. This will reduce
the hypothesis of “the rich get richer and the poor become poorer”. As a policy maker, I would
advise the government to cut down on the defense spending which takes a whopping 15 percent
of the total federal spending. According to Edward (2016), there is distending in the defense
bureaucratic cost which spends more than $100 billion annually which is economically
insignificant to the country. According to Bosi et al (940), theory of Laffer curve infers that tax
Treacherous domestic predicament | Assignment_1

ECONOMICS 2
rate cut will lead to an increase or a decrease in the tax revenue depending on the optimal tax rate
that the government wish to have. This can be shown using the below diagram;
Diagram 1.0: Laffer curve for tax rate and revenue
From the diagram above, it shows that the rich or higher income earners should bear the
highest percentage of tax rate so as to increase the government earning in terms of revenue. The
new tax law that came to effect in 2018 led to a reduction in tax for citizens who earn low
income while increasing tax to the richer class. According to Snyder (93), 60 percent of the USA
population are middle income earning those waiving tax to a certain limit will induce increased
government tax revenue thus leads to servicing the government deficits.
PART B
After the Great Global Recession of 2007/2009, the U.S. federal government spending
increased to 24.5 percent in 2009 from 19.6 percent in 2007. At the same time, the tax revenue
declined to 15 percent in 2009 from 19 percent in 2009 (Blecker 209). These were due to the
stimulus packages that both the former presidents, Bush and Obama undertook to save the
country from the financial downfall. For instance, during president Obama tenure, the congress
Treacherous domestic predicament | Assignment_2

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