Fiscal Policy - Government Spending and Taxes

Fiscal Policy

Government Spending and Taxes

According to Colander (2013), the government has the ability to change the spending and taxes but due to the lengthy budget process it takes approximately two years to implement a fiscal policy. The budget is split between mandated government programs and discretionary spending. The mandated government programs consist of two thirds of the budget which include Medicare, Social Security, and interest on past government debt. According to Federal Spending: Where Does The Money Go (n.d.), Social Security compromises a third of mandatory spending. Medicare is 23% of mandatory spending. Discretionary spending is defense programs and government agencies. According to Government Spending (n.d.), in 2013 total government spending was 6.1 trillion dollars. Government spending has slowly increased with a total spending of 6.2 trillion in 2014, 6.4 trillion in 2015, and 6.7 trillion in 2016 (Government Spending, n.d.).

Income tax is a government tax enforced on individuals and entities in the United States. Income tax began in 1812 during the War of 1812 to help repay war costs to the government (Investopedia, 2016). Income tax is a divided subject between politicians. Republicans lobby to lower taxes while Democrats lobby to promote infrastructure, which increases income tax rates. Our most recent taxes that were due in April 2016, the income tax rate ranged from 10%- 39.6% (Efile, 2016). The United States has a progressive tax system, so it is primarily based off income. The United States also has a pay as you go system, so individuals have taxes deducted from their payroll checks and are then given directly to the government (Colander, 2013).

Income tax is calculated after each fiscal year to determine the total. If an individual pays too much income tax throughout the year they are issued a refund, if they have not paid enough they must pay the balance due. Tax rates have remained the same, but income brackets have changed on annually. In 2013, a single filer was taxed the minimum 10% with an income between $1-$8,925 (Efile, 2016). In 2015, a singled filer was taxed the minimum 10% with an income between $1-$9,225 (Efile, 2016). There has been a steady increase of approximately $150 per tax year to the income tax bracket schedule.

Impact on U.S. Economy

Fiscal policies have various impacts on the U.S. Economy. According to “Congress Budget Office” (n.d.), “federal tax and spending policies can affect the economy through their impact on federal borrowing, private demand for goods and services, people’s incentives to work and save, and federal investment, as well as through other channels” (Economic Effects of Fiscal Policy). There is a thin line between spending too little and spending too much. On one had if the Government does not spend anything then the Economy cannot