Eco 203 Analysis of Federal Budget Deficit

A budget deficit is described as the difference in the funds that the government collects in taxes and what is spent. In 2001 the economy was at $128 billion surplus and has steadily decreased to a $1.327 trillion deficit in 2012. It is currently projected that by 2013 the deficit will be down to $901 billion (Amadeo, 2012). A popular question is whether the source of a deficit really matters or not, the concern is the fact that the United States is in debt. Many Americans want to place the blame of the high deficit on the financial crisis that began in 2008 or even the President. As stated by Case in the text, “Voters appear to hold the party that is in power in the White House accountable for the economy. Voters tend to favor the incumbent-party candidate if the economy is good (high output and low inflation) and vote against the incumbent-party candidate if the economy is bad (low output and high inflation) “(Case 101). There are many factors, controlled and some uncontrollable, that contributes to the formation of a budget deficit. In order to understand a deficit and attempt to decrease it, the source and reasoning of the deficit needs to be determined.
If the budget deficit is increased due to spending or investments that will stimulate the economy the reason is positive. However, it appears that the government has a history of investing in spending or tax changes that have a negative economic return. Kimberly Amadeo, author of an article published online for US Economy About.com states that there are four factors that directly contribute to the high deficit and only two of those are related to the recession. The first factor was the launch of the economic stimulus package created by President Obama. The stimulus package provided “free” money to families, reduced taxes, and extended the unemployment benefits. The second reason was influenced by the recession and was due to a decrease in tax revenue. This is the money the government makes from taxes. The

References: Amadeo, Kimbery. (2012) U.S. Federal Deficit. US Economy About.com. Retrieved from http://useconomy.about.com/od/fiscalpolicy/p/deficit.htm Case K., Fair R., & Oster S. (2009) Principles of Macroeconomics. Upper Saddle River, New Jersey: Pearson Prentice Hall. Pettinger, Teivan. (2010). Monetary Policy vs. Fiscal Policy. Retrieved from http://www.economicshelp.org/blog/2253/economics/monetary-policy-vs-fiscal-policy/