Question

1. Does the US Government have a spending problem, a revenue problem or both? Why or Why not?
2. Let's look at spending...what is the breakdown of the federal budget (where does the money go)? What proportion is discretionary vs. non-discretionary? Where is the majority of the spending growth taken place?
3. Given the spending growth (where it is taken place), what does this indicate regarding the role of the federal government?
4. What do you make of the US Government's deficits and overall debt from an economic perspective? This might include any consequences (good or bad) that you see. (Back up your thoughts with data.)

Answer 1

US government face both revue problem and spending problem. The federal debt rise to 78 percent of GDP. With respect to this two problem, spending problem is greater than the other one. Spending rises and the revenue is flat. One of the important solutions for this problem is cutting the spending. The rise in spending is caused due to higher interest payments through differed payments. Congress tried to control the spending through Medicare and social security aim to reduce poverty and social insurance roles. The spending of US government broken down in three categories; mandatory spending, discretionary spending and interest on national debt. Most of the spending goes for mandatory spending like social security, Medicare and Medicaid. Discretionary spending is part of US federal budget where taxes are used for discretionary fiscal policy. Discretionary budget include the spending on taxes, defence, aid to foreign countries etc. and non discretionary budget include social security and medical care.
The national debt in US rises to 21 percent during Trump period. Many of the individuals are unaware about the national debt level which affects their daily lives. Budget deficit shows the rise in government spending through pumping money to economy. This created through high level of borrowing from central bank and also from foreign countries. The political disagreements about national debt led to the delay of budget proposal. Government run fiscal deficits by borrowing money through crowd out the capital investment in private markets. The major spending of US government can be classified as Medicare or Medicaid and health programmes, Social security programme and disability pension, defence budget expenses and other miscellaneous expenses. The high level of national debt in US increase the risk of government default, forced coupon increase the corporate debt offerings, increasing cost of borrowing, loss of investment in market securities etc.