Fiscal Policy What Are the Three Major Essay

Fiscal Policy

What are the three major categories of revenues for the federal government? Please comment on each and indicate their relative importance to each other. Relative importance can be indicated by dollar amounts, percent of total revenue or expenditure or, though less informative, by ranking.

The three categories of revenues for the federal government include: individual income taxes, corporate income taxes and social insurance taxes. These areas are interconnected to each other based upon: the strength of the economy and areas they are focused on. For example, in 2009 individual income taxes were $1.01 trillion. This is the largest category for revenues received. While corporate income taxes were $223 billion and social insurance receipts were $915 billion. In the case of individual and corporate incomes taxes, the total amounts were impacted by shifts in the economy (which were down from the previous year). While social insurance receipts were up modestly. These areas are showing how individual and corporate income tax revenues are subject to changes in the economy. Whereas social insurance taxes; are protected from these adjustments. The combination of these elements will have an effect on the total amounts of revenues that are received (from year to year). ("The Budget and Economic Outlook," 2009)

What are the three major categories of expenditures for the federal government? Please comment on each and indicate their relative importance to each other. Relative importance can be indicated by dollar amounts, percent of total revenue or expenditure, or, though less informative, by ranking

The three categories of expenditures of the federal government include: mandatory spending, discretionary spending and net interest. All three areas are interconnected from their ability to impact the national debt. Mandatory spending is the biggest category with this accounting for $2.164 trillion (in 2009). Discretionary spending is the second largest category coming in at $1.184 trillion. While the net interest; is accounting for $195 billion in expenditures. These different areas will have an impact upon the total amounts of increases or decreases on annual basis.("The Budget and Economic Outlook," 2009)

Assume you are the Chief Economic Advisor to the President of the United States and the President has asked you to review the deficit reduction proposals that were submitted by his commission (see link above). Choose the two commission recommendations you agree with the most and the two you disagree with the most, and write an explanation to the President explaining your 4 choices. Please be detailed rather than general in your recommendation.

The two ideas from the debt reduction proposal that make the most sense include: going down to three basic categories for income tax brackets and a $.15 cent additional tax on gasoline for highway expenditures. While to recommendations that do not make sense include: raising the minimum age for Social Security eligibility to 69 and cutting $100 billion in defense spending. In the case of decreasing income tax brackets, this will simplify the tax code and reduce the total amounts of deductions. This will make it easier for everyone to understand how much they owe (without having tax rates high enough to hurt innovation). Whereas the increase in the gas tax will make certain that infrastructure projects receive consistent amounts of support. In the future, this will ensure that the nation maintains its competitive edge. (Fried, 2010)

While raising the minimum age for Social Security is occurring to slow. This is because actuaries are assuming that everyone will need time to make these adjustments. However, the reality is that these standards have not been increased since the 1930s. This means that these changes could occur over a much faster time frame (to reflect the advancements in medicine). If this were to happen, the rate of decline in total expenditures will increase dramatically. (Fried, 2010)

The decrease in defense spending should be avoided. The reason why is the military will be needed to deal with: emerging threats in Asia (i.e. An aggressive China) and continuing to go after Al Qaida. When there are decreases in spending, this.....