Goals of This Exercise
- Discuss the political considerations that contribute to the federal deficit.
- Examine trends in surpluses and deficits in American politics in the second half of the twentieth century and the beginning of the twenty-first century.
- Explore the potential impact of the Federal Reserve Board on controlling the economy on a non-political basis.
Politicians’ Goals: Taxes and Spending
The Rationality Principle: all political behavior has a purpose. All political actors engage in instrumental acts designed to further their individual goals.
The Goals of Fiscal Policy: Taxes and Spending
Elected politicians (the president and members of Congress) have goals to be re-elected and to help their parties win elections as well.
The politics of taxing and spending are often used by politicians to achieve these electoral goals.
Taxes involve the imposition of the costs of government on citizens. Politicians seeking to be elected prefer to impose the costs of government on the coalition supporting their political opponents while lowering the costs (cutting the taxes) on their own supporters.
Government spending involves the distribution of government benefits and assistance to citizens. Politicians seeking to be elected prefer to confer as many benefits on their own supporters as possible while distributing fewer benefits to (cutting spending for) the supporters of their opponents.
Because politicians generally seek to cut taxes and increase spending, these basic motivations tend to lead the government toward deficit spending as greater incentives exist to distribute benefits than to impose costs on citizens. Moreover, economic crises can exacerbate the negative effects of this tendency.
Answer the following questions: