There is no doubt that the Federal American Government has a serious problem with debt while there are many States which share the exact same shortcoming. On the one side, cutting spending is believed to be a good solution to ending a deficit. On flip side, raising taxes is believed to be a good solution to paying off a deficit. Either solution has the potential to work, but success may come at a great cost to the residents of the indebted State. The greatest fault in each solution is they both fail to adequately address the need for a sustainable economic cycle that can improve the overall health of a State’s economy.
When considering government spending, officials need to look at cutting significant expenditures of funds, which are poorly allocated, while they need to increase the positive impact of the funds that are spent. Often governments tend to over focus on minor aspects of the budget, which they believe with incite a political reaction, such as welfare and earmarks, which are two components of the budget that truthfully make up an insignificant portion of any federal or State budget. Instead of attacking political targets, government officials need to look to private entities as well as fiscally and socially responsible governments to find the good business practices they are missing.
Private companies, which require profit for the continuation of operations, focus on the largest areas of spending before dealing with minor issues. Successful companies, such as GE, use protocols, like Six Sigma, to help reduce wasteful spending. As such, government may want to take a close look at similar ideas to help solve their financial difficulties. After and during the Great Depression, FDR pumped federal dollars into social programs to help restart the economy. This example demonstrates the wisdom of government that invests into its infrastructure. By proving quality jobs through State employment, States provide for the needs of their citizens while pumping money into the economy which generates jobs and provides a larger tax base.
Cutting taxes is generally beneficial to an economy in the short term, but it is only beneficial to a government and its people when cutting taxes helps build a larger tax base which results in increased tax revenue. Moreover, stimulating an economy through tax cuts is a weak solution, because it is difficult to maintain an economy once the initial increase in personal spending is gone while the money is lost when it is spent on goods that come from outside of the local or national economy. Tax cuts are harmful to an economy when the tax base shrinks and the government ultimately needs to raise taxes to cover expenses and debt at a time when the people lack economic opportunity.
By decreasing taxes when the economy provides a larger tax base and by maintaining an economy through intelligent social spending, the government can help uphold an economy that is maintainable. Furthermore, with a stable economy and balanced, responsible spending, which invests in the people of a State, government can eliminate the need for deficit.
Moreover, when incomes are high and the American people perceive the benefit of government spending, people do not necessarily mind paying taxes, even if taxes are high. It is when incomes are low and Americans see government engaging in poor spending practices that Americans hate taxes. Cutting spending can help states reduce their deficits, but it is socially responsible spending that generates a larger tax base and gives governments the monies they needs to eliminate debt. Effective and responsible trimming of a budget is healthy for any government; however, only a strong economy can help a State get of debt and stay out of debt.