Fiscal Policy Case

Fiscal Policy

The fiscal policy focuses on government spending policies that have an influence on macroeconomic conditions. The affects of these are tax payers, future social security and Medicare users, unemployed individuals, University of Phoenix students, and the United States financial reputation on an intentional level, domestic automotive manufacture exporters, Italian clothing companies, and GDP.

Tax Payers

Tax payers should expect to see increases in taxes during times of surplus, and decrease in taxes in times of deficit. When in a deficit, the government imposes expansionary policies increasing spending, thereby increasing debt. This debt will be paid by tax payers at a later date. In a surplus, they should not cut taxes and increase spending as they did in 2000, but rather build up surplus and cut debt (Colander, 2010). In times of surplus, debts incurred during deficits should be paid through taxes.

Future Social Security and Medicare users

As negotiations to avert the fiscal cliff move forward, both political parties are reluctant to discuss Social Security and Medicare cuts. However, the need to reduce the deficit is motivating lawmakers to look for creative ways to address Social Security and Medicare. One proposal is a change to the cost-of-living indexes used to calculate retirement benefits and taxes. The Bureau of Labor Statistics uses the consumer price index (CPI) to determine how much the cost of living increases each year due to inflation (Parker).

Economists believe that as prices change, consumers spending habits change. For example, if the price of beef rises and the price of poultry remains the same, consumers will opt for more chicken and less beef. The Bureau of Labor Statistics attempts to calculate the “chained” CPI through this this type of consumer activity. The chained CPI calculations would produce a lower cost-of-living adjustment. A change to the classic CPI would gradually cut Social Security and Medicare benefits. The cuts would be gradual with as much as a 5% estimate within twenty years, totaling hundreds of billions of dollars. The president’s fiscal commission recommends using the chained CPI to calculate Social Security benefits (Parker).

Unemployed Individuals

Tax payers should expect to see increases in taxes during times of surplus, and decrease in taxes in times of deficit. When in a deficit, the government imposes expansionary policies increasing spending, thereby increasing debt. This debt will be paid by tax payers at a later date. In a surplus, they should not cut taxes and increase spending as they did in 2000, but rather build up surplus and cut debt (Colander, 2010). In times of surplus, debts incurred during deficits should be paid through taxes.

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