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Running Head: Efforts to Reduce the Budget Deficit 1

Efforts to Reduce the Budget Deficit













Efforts to Reduce the Budget Deficit 2

Introduction and Thesis
Throughout recent history, the budget deficits have been a rising issue for the United
States. The budget deficits have increasingly been growing at a rapid pace throughout recent
generations which has induced a high amount of stress on the American economy. Focusing on
what exactly the budget deficit is as well as the efforts that have been made by Congress since
1985 to reduce the budget deficits - including the Gramm-Rudman-Hollings Act, the Budget
Enforcement Act of 1990, and the Budget Control Act of 2011 - will help readers gain insight
and understanding about what causes the budget deficit and what can be done to reduce it.
What is the budget deficit?
Many people do not quite understand what the budget deficit is and how it affects our
economy. The budget deficit is a shortfall in revenue; it occurs when the government spends
more than it makes during a year. When the government increases its expenditures or cuts taxes,
the government budget will in turn be shifted toward a budget deficit. If the government
encounters a budget deficit, it will need to borrow funds in order to cover the excess of its
expenditures in relation to revenues. Greater budget deficits and increased borrowing are
suggestive of expansionary fiscal policy. All of the budget deficits are the foundation of the
national debt; the national debt is the total sum of all the budget deficits. According to Amacher
& Pert, (2012), a deficit is the amount by which the federal governments expenditures exceed
its revenues in a given year and the national debt is the cumulative total of all past budget
deficits minus all past surpluses. It is the amount owed to lenders by the federal government.
Government budget deficits can most likely be alleviated by placing an increase on taxes,
reducing expenditures, or by implementing both of these actions. In order to finance deficits,
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more money must be borrowed. Eventually, the deficit will likely worsen because of this since
interest will have to be paid on any previously borrowed funding.
The Gramm-Rudman-Hollings Act
As defined by Columbia Electronic Encyclopedia, 2013:
Gramm-Rudman-Hollings Act, officially the Balanced Budget and Emergency Deficit
Control Act of 1985, U.S. budget deficit reduction measure. The law provided for
automatic spending cuts to take effect if the president and Congress failed to reach
established targets; the U.S. comptroller general was given the right to order spending
cuts. Because the automatic cuts were declared unconstitutional, a revised version of the
act was passed in 1987; it failed to result in reduced deficits. A 1990 revision of the act
changed its focus from deficit reduction to spending control (Columbia Electronic
Encyclopedia, 2013).
With Congress reserving the right to an unlimited ability to spend and the rapid growth of
the national debt, many politicians were alarmed and decided to put pressure on Congress with
the intentions of restricting their unlimited ability to spend. For numerous years, there was talk
of a balanced budget amendment to the Constitution that would require a balanced budget on an
annual basis. As a result, Congress passed the Gramm-Rudman-Hollings Act in 1985. Thus, a
timetable for reducing the deficit from its amount in 1986 to zero in 1990 was set. According to
Amacher and Pate, (2012), the deficit amount in 1986 was $200 billion and there were targets set
for each year. Failure to meet the targets would automatically trigger painful across-the-board
cuts in most federal spending programs. However, the president and Congress were required to
meet the targets only in the projected budget (based on assumptions about economic conditions),
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not the actual budget. Amacher and Pate, 2012. For many years, the size of the budget deficits
did decrease which was a result of increases in tax revenues as well as spending cuts. However,
other forces that were working to reduce the deficit were offset by these results, which ended up
causing deficits to begin to rise yet again.
The Budget Enforcement Act of 1990
The Budget Enforcement Act made distinctive alterations to the previous legislative and
executive budget deficit reduction actions. Both the approach to deficit reduction and the
resources of reaching that reduction had been altered. First, the Budget Enforcement Act of
1990 improved the emphasis in the congressional budget process from controlling the
progressive growth of the deficit to limiting expenditures and it also put the federal budget
process on the path to faultless budgeting.
It [The Budget Enforcement Act of 1990] shifts the focus of the budget process from
deficit reduction to spending control, provides five-year spending totals and mini-
sequesters for defense, international and domestic appropriations, and puts entitlements
and revenue expenditures on a pay-as-you-go basis. The Gramm-Rudman-Hollings
deficit targets have been raised substantially, Social Security surpluses taken out of the
deficit calculation and allowance made for further adjustments for inflation, and other
emergency spending, minimizing the prospect for general sequestration (Doyle &
McCaffery, 1991).
This act was passed by Congress partly to revise the budget control process of the federal
government. After this act was passed, the federal budget had actually reported its first surplus
since 1969 and in 1999 and 2000, the surplus nearly doubled both years (Amacher & Pate,
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2012). However, during the early 2000s, the United States experienced a very intense increase in
government spending which mainly resulted from the September 11
th
attacks as well as military
operations in Afghanistan and Iraq. These events, coupled with a $1.35 trillion tax cut, forced
the budget to return to a deficit basis. In fiscal year 2000, the budget had a $236 billion surplus;
by fiscal year 2004, it was a $413 billion deficit (Amacher & Pate, 2012).
The Budget Control Act of 2011
After much debate between different political parties regarding the anticipation of the
United States reaching the debt ceiling, the Budget Control Act of 2011 was signed into law.
The purpose of this act was to increase the debt limit and to also enact spending cuts gradually
over 10 years while also proposing other actions to continuously reduce government spending
(Amacher & Pate, 2012).
Conclusion
Readers should now have a clear understanding of budget deficit as well as previous
efforts that have been put in place to combat the budget deficit. Efforts such as the ones
aforementioned that are aimed to eliminate the budget deficit have been made in the past and will
continue to be made in the future; the budget deficit is an ongoing issue that will need to be
handled with great knowledge.




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References:
Amacher, R., Pate, J., (2012). Principles of Macroeconomics. Chapter 10.2: The Growth of the
National Debt Since 1980. San Diego, California: Bridgepoint Education, Inc.
Gramm-Rudman-Hollings Act. (2013). Columbia Electronic Encyclopedia, 6th Edition, 1.
Retrieved from: http://web.ebscohost.com.proxy-
library.ashford.edu/ehost/detail?vid=3&sid=f274ff1a-02f6-4a9e-91d7-
950e631a0120%40sessionmgr13&hid=26&bdata=JkF1dGhUeXBlPWlwLGNwaWQmY
3VzdGlkPXM4ODU2ODk3JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aph&AN=3900
9472
Doyle, R., & McCaffery, J. (1991). The Budget Enforcement Act of 1990: The Path to No Fault
Budgeting. Public Budgeting And Finance, 11(1), 25-40. Retrieved from:
http://web.ebscohost.com.proxy-library.ashford.edu/ehost/detail?vid=4&sid=f274ff1a-
02f6-4a9e-91d7-
950e631a0120%40sessionmgr13&hid=26&bdata=JkF1dGhUeXBlPWlwLGNwaWQmY
3VzdGlkPXM4ODU2ODk3JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=eoh&AN=0249
376

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