Reforming Fiscal Policies and Tax System to Cut on US Budget Deficit.

The government of US is currently facing a debt of around $16 trillion and the worrying question is how to cut reduce without hurting the economy. According to Alesina and Silvia (8), there is a consensus that the current fiscal policies are not sustainable in the long run and therefore new ones have to be formulated. Continued holding on to the current fiscal policies can only mean plunging the nation further into debt and keep on struggling on key public investments like infrastructure. In the long term, important national agendas such as empowering the middle class citizens and poverty reduction will go unaddressed casting a very gloomy future of the country. However, this can be avoided by reforming the current US fiscal policies and the tax regime to ensure gradual recovery of the country in the coming ten years (Sherlock 24).

Recovery from the recently experienced economic recession does not necessarily depend on drastic and austerity measures. Instead the measures put in place should focus on achieving long term goals of gradual reduction of the budget deficit as the current economic problems are addressed. In this regards, annual budget deficits can be lowered so that the debt incurred in any financial year is lower than economic growth of the year. This can be achieved by cutting on spending and raising taxes (Bohn 344). Although this may sound easy and workable, it requires a lot of economic planning and alignment of tax reforms with budget or debt reduction in the long run as opposed to stop gap measure. It must be understood that unconventional approach to fiscal policies reformation and increase of taxes may result the opposite of the required results thereby plunging the nation further into debt (Alesina and Silvia 6).

Works Cited

Alesina, Alberto F., and Silvia Ardagna. Large changes in fiscal policy: taxes versus spending. No. w15438. National Bureau of Economic Research, 2009.

Bohn, Henning. Budget balance through revenue or spending adjustments?: Some historical evidence for the United States. Journal of Monetary Economics 27.3 (1991): 333-359.

Sherlock, Molly F. Reducing the Budget Deficit: Tax Policy Options. Congressional Research Service 7-5700 www.crs.gov R41641. Web April 26, 2011, assessed 13th Feb 2012 from assets.opencrs.com/rpts/R41641_20110426.pdf

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