Fiscal deficit Essays - Fiscal Policy, United States Fiscal Cliff

Fiscal deficit Essays - Fiscal Policy, United States Fiscal Cliff Fiscal deficit means government expenditure exceeds its revenue in any particular year. All taxpayers are affected by U.S.'s deficit and debt. Higher government debt crowds out private investment in the form of higher taxes and inflation. Higher debt raises several question marks on government ability to repay it. Due to higher debt levels, risk premium increases, which leads to rise in interest rates. High interest rates negatively interest rate sensitive sectors of the economy such as real estate, consumer durable. High government deficit results in increasing US debt. In order to reduce the current deficit, government hikes tax rate on taxpayers. High debt and fiscal deficit affect US taxpayers in the form of tax hikes, high interest rate on debt, reduced social security benefits/programs and weakening of currency. The overall effect of all these measures results in lower purchasing power of taxpayers and they are left with less money to invest or spend. Fiscal surplus means government revenue exceeds its expenditure in any particular year. When the government runs surplus, it positively affect taxpayers. There are differing ways in which government could spend surplus money. The surplus money could be used to repay debt. Government can decide to issue tax refund to taxpayers or government can increase its spend on social security benefits and programs. The overall effect of all these measures results in higher purchasing power of taxpayers and they could spend or invest more money. References How our national debt hurts our economy. (n.d.). Retrieved July 24, 2015.