Government Spending and Taxation

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Case 1: Government Spending and Taxation

Describe how government spending and the composition of the government has changed in recent decades. In other words, in what areas has the government cut spending and in what areas has the government increased spending in recent decades?
Determine if this change in government spending and composition will help Americans achieve a higher standard of living. Be sure to support all claims with research.
Assess whether democracy can survive if the majority of U.S. citizens pay little or nothing in taxes but benefit directly from increased government spending. Why or why not?
Propose the composition of government, government spending, and taxation that you believe would work best. Be specific and support your proposal with research.
Case 2: The Economics of Social Security

Review Special Topic 2: The Economics of Social Security of Macroeconomics: Private and Public Choice.
Using the Economics of Social Security case, knowledge you have gained in this course, and at least three additional credible sources, analyze the case by addressing the following:

Explain how the Social Security system’s basic principles differ from private insurance.
Determine how Social Security affects the economic well-being of the black community compared to white and Hispanic communities.
Assess if the current Social Security system promotes income equality. Why or why not?
Propose how the Social Security system could be modernized to ensure long-term solvency and fairness in distribution. Be specific and support your proposal with research.

Sample Solution

Government spending and composition have undergone significant transformations in recent decades, driven by historical events, economic shifts, and evolving societal priorities. Here’s a breakdown of trends in the US context:

Overall Spending:

  • Growth:Although the size of government as a percentage of GDP has fluctuated, it has generally grown since the 20th century. For example, the National Taxpayers Union reports that spending in constant 2022 dollars nearly doubled since 2000.
  • Deficit Spending:Balanced budgets have become rare, with deficits exceeding surpluses since the 1970s. This increased borrowing fuels concerns about future debt sustainability.

Composition of Spending:

Increases:

  • Entitlement Programs:Social Security, Medicare, and Medicaid have seen substantial growth due to population aging and healthcare costs. They now consume a significant portion of the budget.
  • National Defense:Military spending has fluctuated significantly, with surges during conflicts like the War on Terror but remaining a sizable category.

Cuts:

  • Discretionary Spending:Areas like infrastructure, education, and research have faced cuts or slower growth compared to entitlements.

Reasons for Changes:

  • Demographic Shifts:An aging population with increasing healthcare needs drives entitlement program growth.
  • Economic Crises:Recessions like the Great Recession necessitate increased spending on social safety nets but decrease tax revenues.
  • Policy Choices:Tax cuts, wars, and domestic priorities influence spending patterns.

Sources:

Note: This is a brief overview. Specifics can vary depending on the timeframe and sources used. It’s crucial to consider diverse perspectives and data sources when analyzing complex topics like government spending.

Future Analysis:

The next step is to analyze the implications of these changes, including:

  • Impact on standard of living for Americans
  • Sustainability of current trends
  • Potential challenges for democracy and income equality
  • Proposals for improving the composition and efficiency of government spending

 

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