Fiscal Policy Essay
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The United States impacts various policies not only at home but abroad. It has been a powerhouse for many years, and its strengths and weaknesses impact other countries. The deficit, surplus, and debt are three major areas influencing these policies. These three factors have a huge impact on many areas we will discuss. These include taxpayers, the future of Social Security and Medicare users, the unemployed, a University of Phoenix student, the United States’ financial reputation on an international level, a domestic automotive manufacturing, or exporter, Italian clothing company, or importer and Gross Domestic Product (GDP).
Italian Clothing Company
The United States’ deficit, surplus, and debt play a factor a role in the conduct of business with any Italian clothing company. Italy relies on its manufacturing exports to provide for its economy, and the United States ranks as one of one of its prolific export partners. According to Economy Watch Content (2010), Italy’s famous brands such as Armani, Valentino, Versace, and Prada have created a niche in the global marketplace where there is a huge demand for high quality and superior goods.
According to Colander (2010), the United States has run a trade deficit in the last 40 years. If the U.S. is unable to purchase from Italy, this affects the Italian economy.
Financial Reputation of the United States on an International Level The U.S.’s deficit, surplus and debt impact the financial reputation of the United States on an international level because these are factors that promote or slow economic growth, future prosperity and foreign policy. The United States’ debt is the largest in the world for a single country, which has caused the financial reputation and creditworthiness of the United States to suffer (Amadeo, 2013).
The dollar is considered to be a global currency and the one primarily used in international transactions and trade. When foreign investors lose confidence in the U. S. Government’s ability to manage the budget and pay off their debt, they raise interest rates on loans for the added risk. Government is no longer able to borrow at affordable rates. Demand for investing in U.S. treasuries diminishes, lowering bond ratings and the value of the dollar. When the value of the dollar decreases, the dollar becomes less desirable, and foreign investors get paid back in currency that is worth less, which damages the special role of the dollar and the financial reputation of the United States (Boccia, 2013). Tax Payers
To repay the nation’s debt budget makers frequently visit the option of higher taxation of the wealthy and businesses. Individuals and Corporations fear this option because staffing and insuring becomes more costly hurting the bottom line. A contributing factor to the current state of the U.S. economy is the gradual decline in taxes that the wealthy must pay.
The U.S. must reduce the deficit or the debt will grow, and could become very costly to taxpayers possibly having to reach in their own pockets to pay off the debt. When the economy is doing well and the unemployment rates are low, the economy should be in decent standing due to the fact that the newly employed taxpayers have once again began paying into the taxes, but they also are stimulating the economy by spending their money and paying sales taxes. Future Social Security & Medicare Users
According to the 2010 Trustees Report “the programs face massive permanent annual deficits starting in just five years. Coupled with a Congressional Budget Office report predicting Social Security and Medicare expenditures to increase around 75% by the year 2030, economists seem to have no certain answers now (John, 2010).” Social Security and Medicare benefits have their own funds so they do not affect one another nor does any other debt affect them. Social funds such as these have their own funding scheme that’s not tied to other federal bodies or accounts (Mankiw, 2011). A domestic automotive manufacturing (exporter)
The effect that the U.S.’s deficit, surplus and debt have on a domestic automotive manufacturing exporter starts with the decline in auto sales. The deficit in the economy is followed by a decline in spending and lowered auto sales. A decline in auto sales reduces employment due to lower demand and adds to trade deficits. When the U.S. is unable to sell to other countries we are forced into a surplus. Businesses fail leading to government bailouts. The government spends money going into debt to save these companies. Unemployed Individuals
The deficit affects unemployed individuals because the people who need help, cannot get it, or cannot get enough to help supplementing their income until they find employment. A surplus provides help with unemployment benefits; WIC and other programs. Debt leads to higher taxes, making sustainability difficult for themselves and their families. University of Phoenix Student
The deficit affects a University of Phoenix student because funding for financial aid could be compromised leading to more private loans. Loans become expensive, costing the student more. The surplus affects a University of Phoenix student by providing additional resources for school funding and programs. Debt means not having enough money to fund schooling leading to higher personal debt. GDP
GDP is affected by deficits, levels of debt and budget surpluses. When the U.S. runs a high deficit, debt levels increase putting pressure on economic growth. The Reinhart/Rogoff research concluded that when a country’s gross debt exceeds 90% of GDP, “median growth rates fall by one percent, and average growth falls considerably more” (Sahadi, 2013). Budget surpluses impact GDP growth positively by providing additional resources for the government to invest in the country’s economy. Conclusion
The U.S. government’s handling of federal budgets affects individuals and businesses alike worldwide from students to major corporations. Deficits lead to debt burdening the economy, negatively impacting nearly every aspect of the financial world. A surplus shows financial responsibility positively affecting the economy and creating prosperity.
Amadeo, Kimberly (Feb. 2013). What the U.S. Debt Is. Retrieved from http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm
Boccia, Romina (Feb.2013). How the United States’ High Debt Will Weaken The
Economy And Hurt Americans. Retrieved from http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americans Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.
Italy Trade, Exports and Imports. (2010, March 27). Retrieved from http://www.economywatch.com/world_economy/italy/export-import.html John, D. C. (2010). 2010 Social Security Trustees Report Continues to Show the Urgency of Reform. Retrieved from http://www.heritage.org/research/reports/2010/08/2010-social-security-trustees-report-continues-to-show-the-urgency-of-reform Mankiw, G. (2011). Principles of Microeconomics (6th ed.). Mason, OH: Cengage Learning Sahadi, J. (2013, April 17). Debt’s impact on growth: Latest study doesn’t settle debate. Retrieved from http://money.cnn.com/2013/04/17/news/economy/debt-deficits/index.html