Free Term Paper On Controlling The Federal Deficit

(First 3 Pages)

The deficit of United States budget has declined significantly from 1993 to 1996, but after 1996 it started to creep again. It has been estimated that the deficit in federal budget, which dropped to $ 107 billion in 1996, will rise up to $ 188 billion in the year 2002-2003 and to $ 278 billion in the year 2007-2008. Compared to the deficits of past twenty years this deficit is much smaller, it has been estimated that the deficit will average 1.9 percent of Gross Domestic Product (GDP) over the period of 1997-2007, as compared to the 3.5 percent over the past twenty years and 0.6 percent from 1950 to 1969. According to the Congressional Budget Office (CBO), in 1965 the discretionary spending was consists of two-third of total federal spending. By the year 1996, those spending shares had been reserved; now the mandatory spending is accounted for almost two-thirds of total federal spending.

The federal GDP spending is also increasing significantly. The average federal spending, which is about 18 percent of GDP from 1950 to 1970, has risen up to 23 percent of GDP in 1980, and then fell to about 21 percent in the 1990s. Hence the total revenue during the period of 1950 to 1990 is almost 18 percent of the GDP, which increased the deficit.

How to reduce the deficit?

The Congressional Budget Office has stated that some solid changes in the policy are needed to reduce the deficit of the budget. CBO suggested that Congress and the President have to enact policy changes that pare deficit by about $ 450 billion. Such deficit reduction policies also reduce the federal debt service costs.

Policymakers are trying to implement some solid changes in the policy, which will help to reduce the deficit and to balance the budget. Th Economist agreed that continued restrain in discretionary sending alone would not be enough to reduce the deficit of budget and to balance the budget. The economists have suggested that, changes in the structural policy that addresses the growth of mandatory federal spending must be needed.

Downsizing of government during Clinton’s Administration:

Under President Clinton’s administration, in 1993, the government of United States had started an ambitious program to reduce the size of the work force. This program was a part of initiative for a government that works better and cost less. The Congress has enacted legislation in 1994, which ensure the reduction of 272,900 full time workers, which is equivalent to almost 12.5 percent of the total federal workforce, by the year 1999. The target had achieved, or rather exceeded by the year 1998, when the downsizing had reached to 355,500 employees, equivalent to 16.2 percent of the federal workforce.

In this downsizing process, key priority was given to the voluntary attrition, and the involuntary attrition was used only as a last resort. The reductions were achieved through:

• Voluntary Separation Incentives: Almost 158,800 employees, who were in surplus, were paid voluntary separation incentives up $ 25,000 to leave the workforce. 87,800 of such employees had accepted the offer of early retirement

• Involuntary separation: Almost 37,000 of the employees were separated using the involuntary separation

This emphasis in voluntary separation of employees had gained many benefits for the government. With this approach, the managers got the message, that while the reductions were necessary, that would be accomplished in a way that sought to balance the needs of federal workers with the need of the workplace. This approach also helped the government to retain its gains, which the government had made by improving the diversity of the workplace.

This reduction policy also had some pitfalls; according to some people the Clinton management reforms did little to help the normal taxpayer. The number of civilian Full Time Equivalent positions had declined by 19 percent, since 1993. At The meantime, the cost of the civilian workforce has increased 14 percent, from $ 111 billion to $ 127 billion.

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