Macro Research Paper

2219 Words Apr 8th, 2013 9 Pages
The Great Debt Shift from 2000 to 2012
The United States is facing a structural budget deficit in recent years. The fiscal situation has an increasingly dire and unsustainable outlook over the next 10 years and beyond. However, looking back ten years before, when George Bush took office at the beginning of 2001, the federal government was running a substantial budget surplus and projected rising surpluses. Here comes to a question: how did federal government get into this fiscal mess. My paper dedicates to examine the federal budget balance and government policies over last ten years and analyzes the reasons for this dramatic change from substantial surpluses to massive deficits. Furthermore, I will also shed a light on the dilemma
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Spending for operations in Iraq and Afghanistan and related activities cost $610 through fiscal 2008: $575 billion for the Department of Defense and $35 billion for international affairs (CBO, 2010). These polices were enacted with bipartisan support, including decisions to add their costs to the federal deficit. Moreover, Obama administration further extended some government spending on the Iraq war and anti-terrorism as spending in 2009 through 2011 brought that total to $1.1 trillion.
Three other significant increases in government spending involved the Medicare prescription drug benefit, the TARP financial sector bailout, the 2009 stimulus, and interest on the debt. According to latest report conducted by Federal Reserve Bank of St. Louis, “SSM (Social Security and Medicare/Medicaid) accounts for essentially all of the increase government spending that has given rise to the deficit problem” (Thornton, 2012). Spending for Medicaid and Medicare increased from about 18 percent of mandatory spending (which includes Social security payments, Medicare, Medicaid, income security, other retirement and disability spending, and all other mandatory spending) in 1979 to 31 percent in 2011. Furthermore, government spending on Medicare and Medicaid has surpassed spending on defense since 2000 even the latter also largely increased due to the anti-terrorism activities and war costs. By 2011, spending on Social Security Medicare, and Medicaid had jumped to 10.3 percent of GDP.

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