Fiscal Policy: Government spending, taxes, budget processes

Solution Preview

The response addresses the queries posted with references.

//U.S., the biggest economy of the world, is passing through a critical situation. The country is facing one of the biggest economic depressions. In relation to this problem, the section is presenting a brief and general discussion about the recession and its effects on the economy. The discussion will provide a basis for further detailing //

The United States of America was subjected to get affected by a deep and world wide recession. This recession was the result of a sharp downfall in the U.S. housing markets. This downfall in the market resulted into the bankruptcy of some of the major financial institutions. It also affected the functioning of the financial market of the country negatively. The Congressional Budget Office of the United States of America anticipated that this economic depression will last long till the end of year 2009.

Further, the organization also anticipated that in the year 2009, the inflation-adjusted Gross

Domestic Product (GDP) will fall by 2.2 percent, which will recover slowly in the year 2010 by increasing 1.5% (Orszag, 2008). This recession will also result in the rise in unemployment, the loss of riches, and tight consumer credit. This recession affected the budget of the federal government significantly. The government had to redesign its budget accordingly. The government had to look upon its sources of income, expenditures, total national debt to reschedule its overall financing structure, so that they can make an effective and efficient use of their resources.

// Budget is the important part of the economy of a country. It contains the over all plan of the revenues and expenditure which are to be met in the next period. The section is revealing the major sources of the revenue from where the country is earning most of its income. Further, the section also states the important avenues of the expenditures. //

Major sources of revenue

According to the projection report of C.B.O for the year 2009, due to recession the total revenue for the year 2009 is anticipated to decline by $ 166 million or 6.6% in comparison to the year 2008. The federal Government of U.S possesses several good sources of the revenues. According to the projection made by the C.B.O, for the year 2009, the government has 3 major sources from where it generates the revenues (The Budget and Economic Outlook: Fiscal Years 2009 to 2019, 2009). These sources of revenue are detailed below:

Individual income tax: The Federal government of the U.S earns primarily from the payroll taxes and from personal taxes for example the personal income tax. The individual income tax
Is tagged as the highest revenue generator tax for the federal since 1950 (The Numbers: What are the federal government's sources of revenue, 2008). This is the tax which is paid by the individuals in respect to their income. Due to recession, as the income of the individuals are going down, the revenue from this category is also expected to decline in the y ear 2009 by $ 86 million or 8% from the last year.

Corporate income tax: This is also an ...