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1) Are we going back to the budget deficit cycle again? Is it because of slow recovery, sagging stock market or the war against terror or The president Obama's fiscal steroid of stimulus?
2) or is it now on right track to reduce the size of budget deficit?
- Most people blame the deficits on the 2008 financial crisis. But that's only half the story. These enormous deficits were the result of four factors. Only the last two are related to the recession. First, the attacks on 9/11 led to the War on Terror. That almost doubled annual military spending. It rose from $437.4 billion in 2003 to a peak of $855.1 billion in 2011. For more, see Military Budget. Second, mandatory spending has increased. That means benefit payouts for Social Security, Medicare and other mandated programs. The U.S. federal budget deficit for fiscal year 2018 is $440 billion. FY 2018 covers October 1, 2017 through September 30, 2018. The deficit occurs because the U.S. government spending of $4.094 trillion is higher than its revenue of $3.654 trillion. (Source: "2018 Budget. Table 2," Office of Management and Budget, March 16, 2017. “Mid-Session Review Fiscal Year 2017. Table S-5,” OMB, July 15, 2016.)
3) Although the war against IRAQ was over quick(?), there will be involved with the additional cost after the war including the reconstruction and humanitarian aids , or another war(Afghan) or fighting against ISIS. How does this military cost contribute to our rising budget deficit?
- The Iraq War was a military conflict that lasted seven years (2003 - 2011) and cost $1.06 trillion. In fact, most American families did not feel the cost of the Iraq War at the time. First, there was no draft as there was in the Vietnam War or World War II. Second, there was no additional tax. As a result, those who served and their families bore the brunt. They will pay at least $300 billion over the next several decades to pay for their injured family members. That doesn't include lost income from jobs they quit to care for their relative.
4) Will Trump's stimulus package( Spending increase and Tax cut) contribute to another huge budget deficit down the road? Is this large budget deficit necessary for the economy now( could this policy be overheating the economy or inflationary?) or will it cause another financial danger haunting US economy soon due to crowding out from these huge deficit?
- Ms. MacGuineas’s group estimates that Mr. Trump’s plan could reduce federal tax revenue by $3 trillion to $7 trillion over a decade.While Mr. Trump and his team point to the growth linked to tax cuts passed by previous presidents, today’s economy is different from that of 1981 or 2001, when Presidents Ronald Reagan and George W. Bush cut tax rates. Mr. Trump’s tax plan would increase the deficit, but it is looked at deficits through sort of a different lens by citizen.
5) Do you have any fresh ideas to reduce this budget deficit to prevent American version of Greek Tragedy?
- Yes, I do. My idea is addressing entitlements, taxation, and revenues. This idea will shift the focus to entitlements, tax reform, and new sources of revenue. The CBO directors will set the stage for the day’s discussions around 13 new proposals for reducing the deficit. A diverse group of authors will join the forum for roundtables focusing on an enduring social safety net, innovative approaches to tax reform, and new sources of revenue and efficiency.
6) To finance current budget deficit, US government relies on T bond sales. The significant portion(over 30%) of T bonds are purchased by foreign governments or capitalists(lately China). What is your opinion about relying on foreign debt to finance US budget deficit? If some foreign countries became unhappy about trade or political matter with US government( of the new president, Trump) or due to lack of confidence over US T Bond and decided to cash out(sell) US T bonds they are holding, what economic consequence do you expect to be occurred?
- America is on a dangerous budget path. Current spending and debt are dangerously high, and future spending and debt are on track to rise even higher in large part due to increasing entitlement spending. The implications would be severe and pronounced for all Americans, but most especially for the poor, the elderly, and the middle class. U.S. policymakers should learn from Greece and Japan and avoid a fiscal crisis and economic stagnation brought about by public debt overhang.
7) To reduce a budget deficit, is it a good idea to raise a tax on the wealthy?
- Yes, it is quite possible to reduce the deficit without raising taxes on the middle class. The vast majority of this revenue is contributed by the most affluent Americans, by rolling back the Bush tax cuts, raising tax rates on investment income, and reforming tax breaks that disproportionately benefit them.
8) US national debt to its GDP is a little over %100. Japanese national debt to its GDP is getting close to %250. Could this be a potential disaster for the global economy ,since Japanese economy is 3rd largest one in the world?
- Japan is the world's fifth largest economy after China, the European Union, the United States, and India. Its economic output was $4.658 trillion in 2015, as measured by purchasing power parity. That was 0.1% less than its Gross Domestic Productin 2014. ( Japan's Economy: Recession, Effect on U.S. and World, Kimberly Amadeo, Sep 08, 2016) The Bank of Japan had been the largest holder of U.S. Treasuries until China replaced it in 2008. Both Japan and China does this to keep the value of their currencies low relative to the dollar. That keeps their exports competitively priced. However, this strategy drove Japan's debt to 182% of total GDP output even before Abenomics. (Source: CIA World Factbook) A low yen made Japan's auto industry very competitive. That was one reason that Toyota became the number #1 auto maker in the world. However, if the BOJ decides that a low yen isn't boosting growth, and oil prices rise, then it may let the yen strengthen to reduce inflation. It would purchase fewer Treasury bonds, which would allow yields to rise, and boost U.S. interest rates as a result.