Fiscal Policy Paper

The notions of budget deficit, surplus, and debt are closely connected with and have affect on the taxpayers and Social Security and Medicare users. Following this, their impact on the taxpayers is considered first. Budget deficit negatively impacts American taxpayers. First of all, it requires sharp tax increase including income tax increase, which declines solvency of individuals and slowdowns economy. In the opposite situation, budget-surplus funds could be refunded to taxpayers who they could spend or invest as they choose. The situation when government needs to refund the overpayments to taxpayers could occur as a result of excessive taxation, (Tucker, 2010).

Nowadays, high national debt of the U.S., which was caused by stimulative fiscal policy of low taxes and increasing government spending, is a really great problem for taxpayers. Higher level of national debt creates costs for future taxpayers by higher inflation, higher taxes, and lower government benefits. The exact effects of a budget deficit, surplus or debt depend on the Social Security and Medicare users in part on how government uses the funds. Budget surplus could be directed toward government spending, including spending for Social Security and Medicare users, which are the biggest items of government expenditures in the U.S. budget. On the other hand, budget deficit leads to massive spending cuts on all government services including Social Security and Medicare. The amount of Social Security and Medicare users grows faster than the U.S. GNP; therefore, these items take a huge part of the government revenues, and they will grow bigger and bigger in the future. Thus, in the situation of high national debt, individuals should be prepared that payment of social and health insurance will be reducing, (Boothe, 2003).

In conclusion, the U.S. budget deficit and high national debt have direct and essential impact on the solvency, standard of living, and prosperity of the individuals. This will affect the economy of the state either internally or externally. This has raised the cost of goods and services within and outside United States of America. USA has to establish new policies to deal with its internal and external debts.



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