The federal budget is the nation’s financial powerhouse, from which money for various governmental programs is drawn. The federal government has a financial system that allows it to manage and run its operations throughout the year. The fiscal year is a bit different from the normal year in that it begins on the 1 st of October and ends on the 30 th of September the following year. In between this months, the government spends time developing and implementing various policies to address the needs and grievances of the electorate. The government mainly raises its finances through taxing various processes and operations that are conducted within its borders (McEachern, 2014). The role of the federal government is to ensure that it manages the money it collects to meet its expenditure. From time to time, however, the government may overspend or underspend, giving rise to deficits and surpluses respectively. This paper is an attempt to define the federal budget by discussing it formation process and how it is operationalized.
The current federal budget can be summed up in a single phrase i.e. deficit spending. This is an aspect that has been part and parcel of the American economy since the Second World War. The federal government has experienced a total of four incidences in which its federal budget was considered to be balanced, more specifically in 1960, 1969, 1998 and 2000. Prior to 1940, the American federal government experienced a balanced federal budget except during times of war and economic downturns. The contemporary American budget comes into being through a seemingly complicated process. Under a democracy, budgetary decisions are subject to debate and discussions to ensure that the budget reflects a national picture. This process entails using legislative bills to determine specific amounts of cash that are spent on various programs. The budgetary process begins with the president's request for a budget, after which the Senate and House of Representatives Committees take over the process. These particular committees focus on the allocation of funds to programs and services that have been authorized by law. An additional committee referred to as the Appropriations committee is also involved in the process and it deals explicitly with non-entitlement programs.
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The ongoing financial year 2017-2018 depicts a $440 billion deficit for the United States. In other ones, this means that government’s spending exceeds its total revenue and as such borrowing has to be done to offset the balance (Krumbhaar, 2017). Budgetary deficits come about as a result of a myriad of reasons. While economic recessions may account for a great deal of the budgetary deficits that continue to rock the United States, the engagements by the government also tend to create tremendous deficits. The tanking of the American economy in 2007/2008 was a major contributor to the ensuing deficit that the country continues to face. The recession meant that the level of revenue and taxes significantly declined and as such the government’s income declined as well.
According to Dwivedi (2010), spending on activities such as military and foreign policies of War on terror following the 9/11 attacks led to a tremendous rise in the government's debt. While deficit spending often evokes great concerns from the general public, it is often used as a means of bringing about economic growth. Not only is government a component of the GDP, but also results in the development of programs and services that enhance economic activities. It is also worth noting that the availability of lenders in the global community makes deficit spending plausible. Finally, since politically elected leaders determine the federal budget, obligations to the electorate often push the related parties to consider borrowing to ensure that they achieve their mandates and political obligations. While deficit spending can be detrimental to the economic well-being of the general public, it has been found to be essential in boosting the economy out of a recession. The level of deficit spending should, however, be checked since it not only results in astronomical debts but also informs the debt owners of the financial muscle of the nation.
Deficit spending often comes about with tremendous impacts on the economy. One of the elements that come about as a result of government overspending is crowding out. Crowding out implies a situation in which the government’s borrowing brings about a decline in corporate investments. Such a scenario arises when there is an increase in the interest rates which impede and discouraging corporate borrowing. Private companies and individuals play a crucial role in boosting the economy, however, when high-interest rates limit their borrowing ability, their level of investment significantly declines.
Crowding out tends to limit general consumption, and as such, it brings about a further decline in the economy. Crowding in is another outcome of deficit spending by the federal government. This particular scenario comes about when a government's spending creates numerous opportunities for business can increase their profitability. Increased economic activity tends to result in a subsequent increase in consumption. This then results in a crowd in effect for private sector players who aim at leveraging the increasing demands from the consumers. The crucial point to note therefore is that while crowding in indicates economic growth emanating from deficit spending, crowding out posits an increase in borrowing rates due to deficit spending.
References
Dwivedi, D. N. (2010). Macroeconomics: Theory and policy . New Delhi: Tata McGraw Hill Education Pte Ltd.
Krumbhaar, G. D. (2017). Working the federal budget: A guide . London: Routledge.
McEachern, W. A. (2014). Chapter 12: Federal budgets and public policy. In ECON: MACRO4 (Pp. 206-223). Boston: Cengage Learning.
