Free «Capital Funding and Debt Paper» Essay Paper
Governments borrow funds from other governments or financial institutions to start the various projects for its citizens or even complete projects that due to inadequate funding have not been completed. The year 2014 saw an increase in the expenditure of the federal government. This resulted the expansion of the various projects that the government has initiated. The increased spending means that the government needs to borrow more, or raise taxes to cater for the expenditure. This paper discusses the funding of projects, and government spending in 2014.
Budget deficit refers to a financial situation whereby the government spending exceeds the revenues got by the government. In 2014, the deficit of the Unites States budget fell to reach $486 billion. This shows a small improvement from the deficit of the previous years during the economic recession. The main reason causing the decrease in the deficit is an increase in taxes. Other reasons include an improvement of the economy hence more revenue was earned by the government, taking effect of the Budget Control Act of 2011 that saw cuts from spending caps, and sequestration being spent, and the expiration of the extended employment benefits. To prevent a rise of the deficit again, congressional representatives need to reduce wastes, inappropriate spending, duplication, or privatization. They should also alter entitlement programs to be cheaper and available to citizens who mostly need them.
The national debt includes debts within the government and debts held by the public. In 2014, the national debt was about $18 trillion which was a climb from the previous year. This was an addition of more than $13 trillion in the form of publicly held debts and almost $5 trillion in intragovernmental debts. This rising debt if not checked is a threat to economic growth, brings harm to economic opportunities of the U. S. A., and even serves as a national security threat. Per each American household, the national debt amounts to an excess of $145000 in 2014.
In 2014, the federal government had an expenditure of $3.5 trillion while gaining $3 trillion in the form of revenues (Boccia, 2014). The result of this is a deficit of $500 billion, meaning that in every dollar spent, 14 cents were borrowed. The growth in the expenditure has been a result of the growth of federal spending. Over the past twenty years, the overall expenditure of the government has grown 63% faster than inflation. Of this expenditure, after an adjustment for inflation, mandatory spending doubled while discretionary expenditure grew by47%.
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Entitlement programs refer to the various projects started by the government to help needy citizens. According to Rogers-Dillon (2004), entitlement programs describe any benefits program established to citizens as a right of a citizenship and funded by the government. Various entitlement programs have been developed by the federal government to offer various services to needy citizens. They include, among others, various health care and social security programs.
The fastest growing entitlement program is Medicaid, which is estimated to have a growth of about 87% over the next ten years. The reason for this estimated hike is the expansion of Obamacare, which is a Medicaid program. The program which provides health care to an excess of sixty million American citizens is a known consumption for state and federal budgets.
Over the next ten years, Obamacare’s new expenditure will amount to more than $1.8trillion. This is due to the program’s expansion in Medicaid and the subsidies it offers to people purchasing health insurance using the new exchanges. Most states rely on the federal exchange to enable the enrollment of the program while others use operating exchanges. Despite the various benefits offered by the expansion of Obamacare, it has a big disadvantage of the small business tax credit. This has been the reason why small employers have not been choosing expensive health care covers. According to Boccia (2014), in 2011, only 7% of the potential employers enrolled in the program. Starting 2014, the package is only available to businesses enrolling in the program called SHOP (Small Business Health Benefits Options program). This program can only be enrolled for a 2-year maximum period.
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The federal government spending is projected to grow in the next ten years. Various measures are being taken by the Congress to prevent this growth such as sequestration, and the Budget Control Act of 2011 that combated the discretionary budget. However, the mandatory spending has not been affected and is continually on the rise. This includes entitlements. Interests on the government’s debts and entitlement spending are expected to contribute about 85% of the growth in spending within the next decade.
The reason why the debt of the federal government is on the rise is an increase in spending by the government. Various programs that have been set up by the government have been expanded and after the expansion, spending has increased forcing the government to borrow additional funds to support these programs. The three national programs increasing government debt at the most rapid and significant rate are the social security program, the Medicare program, and the Medicaid program. The American citizens are the beneficiaries of these programs. The Social Security program benefits the retirees by providing them with funds to spend after retirement from their jobs. On the other hand, Medicare and Medicaid programs provide citizens, organizations, and other institutions with the required health care in the form of subsidized health insurance policies for individual and business use. In most cases, the federal government pays for the programs which it initiates. In other cases, the funding of the programs shifts to the state governments from the federal government.
If the overall spending of the federal government is not checked, then the country is headed in a dangerous economic course. In the next decade, an overall growth in the expenditure is expected to be. Due to the growth in the overall expenditure, taxes will increase to cover the increased expenditure as well as an increase in the borrowing by the federal government. What the government needs to do is to reduce wastage within the various programs that it has initiated, and to reform these programs.
One of the reasons of a continuous hike in the government spending is the mismanagement in the various programs initiated by the government. One of the mismanaged programs is the construction of the facility to produce fuel for a nuclear reactor, and the second is a facility to dispose liquid wastes from the first facility. As of 2014, the two projects were unfinished and had surpassed the estimated total completion cost of $4 billion; the National Nuclear Security Administration had already spent $7 billion on the two incomplete projects. Another program demonstrating mismanagement on the government’s side is the Medicare PartB project. This program spent six times more than the same expenditure used in Medicare Part D. Medicare Part D used $22million for the equipment and medicine while Medicare Part B used $132.9 million for the same equipment and medicine for cancer treatment. Finally, the government has been on a program to build the headquarters of the Department of Homeland Security (DHS) (Boccia, 2014). This program was expected to be completed in 2003, but as per 2014, the program was yet to be completed while having spent $4.5 billion of the taxpayers’ money.
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The more this debt owed by the government grows, the more the likelihood of calls for repayment. When trends become unfavorable for economic opportunities, the economic growth will be at a standstill, or at worst; the economy will start declining. This means that the government will borrow from other governments or financial institutions more funds, increasing the national debt. The GDP of the country will be small compared to the expenditure by the federal government, and, at this point, the National debt will be called in. The reason for this will be a downfall in the economy. The creditors will feel that the poor economy cannot service their loans and therefore no longer tolerate not being repaid.
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Various remedies have to be employed to prevent the massive borrowing by the federal government. The debt is passed on to the next generation which passes it on to the next, and so on. To stop this cycle of massive borrowing, the government needs to avoid mismanagement of money in its projects, and duplication of activities in these projects (Boccia, 2014). One of the reasons why the government borrows is to cater for the various programs it initiates. If the programs’ funds are mismanaged and duplicated, then more will be borrowed to ensure that the programs are seen through. Better management of programs ensures that little or no money is wasted, and no duplication of activities occurs. Programs use the funds allocated to them, and another government funding is used for other demanding projects.
In conclusion, the year 2014 saw a rise in the national debt of the federal government. There has been an increased expenditure by the government hence more is borrowed to cover for the expanding projects, as well as increased taxes paid by employed citizens. If this trend is not checked, then it will lead the country to a dangerous economic road. Examples of the projects that are using most of the funds include Social Security programs, Medicaid, and Medicare programs. To prevent the massive borrowing, mismanagement of funds in the programs needs to be dealt with, and, in the process, the funds must be used for other demanding projects.
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