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Government Spending Taxation and The Economics of Social Security

Government Spending Taxation and The Economics of Social Security

Government Spending Taxation and The Economics of Social Security

This winter and spring’s rapid spread of the novel coronavirus brought to light the negative effects of hollowed-out government institutions, long-term overinvestment in public health, significant coverage gaps, and treatment disparities. Millions of lower- and middle-class families experience hardship even in the best circumstances due to an unequal distribution economy, which benefits only the wealthiest Americans (Afonso et al. 2021).

And the current period is not the best. The federal government has imposed an economic recession on the economy to limit the number of deaths brought on by the covid-19 virus. Millions of laid-off workers depend on significant government help to make ends meet because states and localities have lost control and closed bars, restaurants, and other businesses (Roth et al., 2021).

The government has also meddled in the market in other ways, spending billions on bailouts for the airline industry and other ailing industries while ordering GM and 3M to stop producing ventilators and protective gear by the Defense Production Act (Afonso et al., 2021).

The government has also impacted people’s behaviour, encouraging and, in some cases, enforcing people to stay indoors, practice social distancing, and wear masks outside, with fines or penalties in some circumstances. All Americans’ privacy may be invaded by contact tracing, an effort to monitor those exposed to the virus (Roth et al., 2021).

The growth of the economy is influenced by federal expenditures, who pays what taxes, and the amount of debt that the government takes on to make up the difference between taxes and spending. Healthy growth indicates a stronger, more prosperous nation with more opportunities for you, your family, and your community. These opportunities include more jobs, higher salaries, more money to save and invest, and better government services. Growth is also essential for the US government to maintain its status as the world’s preeminent power (Afonso et al., 2021).

On the other hand, the federal government’s budget projections are unsettling for long-term economic growth. It is anticipated that debt will increase more quickly than the economy, reaching proportions unprecedented in our nation’s history. As a result, government borrowing would consume private funds that could have been used to increase worker productivity (Roth et al. 2021).

Government spending on fundamental research, infrastructure, and education is anticipated to decline, which could increase economic growth and productivity. Under current law, these expenses will increase faster than the GDP. These expenses are crowded out by debt interest, Social Security, and healthcare programs (Afonso et al., 2021).

Federal revenue won’t be able to keep up with rising spending because of large, growing, and economically unviable tax expenditures, provisions in the tax code favouring some activities over others while lowering government revenues (Roth et al., 2021).

To ensure a brighter economic future, policymakers must restrict the development of debt. To effectively raise enough money, they can prioritize spending initiatives that support economic growth, boost the effectiveness of existing initiatives, and alter the tax structure. Changes like these might lessen the financial burden of debt (Afonso et al., 2021).

In this situation, democracy, in my opinion, cannot survive. The minority of people who do pay enough taxes become less motivated to work when the majority of people fail to pay enough taxes. The issue will get worse if the majority population receives any of the high taxes levied on the minority population. Since most those who pay minimal tax rely on government assistance, this contributes to inefficiency. Because a significant amount of their salaries are taxed, minorities who pay higher taxes become less motivated to work, which raises the unemployment rate. Social unrest in the country would lead to conflicts across sectors, endangering the government because it would lose its main source of revenue (Roth et al. 2021).

A democracy is a system of government in which the people elect the officials who will represent them. Democracy is based on the notion that citizens pick their representatives, who create a government and pass laws governing the investments that keep a country functioning successfully (Afonso et al., 2021).

While some politicians wish to prevent the government from growing or decreasing, federal spending and taxation will need to increase significantly as a percentage of GDP during the next few decades. This is not a declaration of political values; rather, it is a reflection of fundamental truths: the ageing of the American population, healthcare costs outpacing economic growth (despite ongoing technological advancements), potential threats to national security, and current and future domestic issues like pressing infrastructure needs that cannot be postponed indefinitely.

Between now and 2035, these factors are expected to boost government spending by around 212 per cent of GDP, or from 20.9 per cent to an anticipated 23.5 per cent in 2035. Revenues must increase by at least as much to prevent the deficit ratio from rising (Roth et al., 2021).

In the coming decade, I think we should permit the debt level to rise as a percentage of the total in line with what would be permitted by the rules in place, but we should alter the budget’s structure by raising the cause of the increase above what would be permitted by the rules in place and paying for it with higher taxes and retiree benefit reductions for those with higher incomes. To reduce debt proportionally to returns over the long term, I also think that we should gradually increase taxes and institute larger benefit reductions. Additionally, we should improve the automatic stabilizers to lessen the effects of the upcoming economic catastrophe (Afonso et al., 2021).

Existing expenditure and revenue regulations are unsustainable because government debt cannot continue to increase in direct proportion to economic growth. Furthermore, even if future debt growth stops, allowing debt to stay at this high level would result in expensive costs. The federal debt may hinder private capital investment. High debt levels likewise constrain the “fiscal space” available to respond to unforeseen circumstances. If there is another financial crisis or deep recession, our options will be more constrained since debt would be 90 or 86 per cent of GDP rather than 35 per cent. For such reasons, the government debt should be drastically and quickly decreased, with everything else equal (Roth et al. 2021).

The Economics of Social Security

In the social security economy, the wounded workers may anticipate that their benefits will be paid to them, their ancestors, or survivors without undue restrictions because their wages help to pay for the benefits. He is more likely to augment his protection with retirement savings, private insurance, home ownership, and other assets if he is confident that he can plan freely without worrying about exhausting all his funds and resources if his income ends (Gechert et al., 2021).

The fact that the program contributes also encourages a proactive attitude toward it. The employee has a personal stake in the program’s viability since he is aware that the funding for the current program and any changes are based on social security contributions to which he pays. The requirement for coverage to the fullest extent practical is another important idea. A community cannot be considered safe if a sizable portion of its citizens lacks protection from income loss brought on by the retirement, disability, or passing of the family provider. If the program weren’t required, many people who needed protection wouldn’t sign up. Even if they know the need to protect themselves, many low-income workers may decide not to pay social security taxes (Simpson et al. 2021).

This results from the challenges they face in meeting their current requirements. They’d eventually have to rely on the government’s general revenue to keep them afloat. When social security law was initially formed, only employees in business and commerce were covered.

Since that time, almost every occupational group has expanded coverage, including self-employed city individuals, domestic staff, agricultural employees, and armed forces members (Gechert et al. 2021).

Social insurance systems are important because of African Americans’ tremendous economic disadvantages. By examining how African Americans use them, it may be possible to comprehend better the importance of Historic, Survivors, and Insurance Coverage (OASDI, or Retirement Benefits) benefits and Helped Put Security (SSI) payments in assisting at-risk groups (Simpson et al. 2021).

Previous research has examined several facets of the relationship between African Americans and retirement benefits. Numerous studies, for instance, have examined the disparate significance of children’s benefits for African Americans and the low deferred compensation receipt rates among Black people. This study builds on earlier research by employing the American Survey Research (ACS), a contemporary, widely available, and comprehensive data source, to describe the economic and demographic characteristics of Black American OASDI and SSI users. This study aims to lay the groundwork for in-depth investigations of how Black people interact with Social Security and other associated services (Gechert et al., 2021).

In the event of retirement, disability, or the loss of a primary provider of income, practically all American workers and their families can get financial assistance from the country’s Social Stability sector. Two hundred thirty-nineThe program covers 239 million employees who are 20 years of age or older. According to Simpson et al. 2021, 58 million people received Social Security benefits in 2013, including 360 million pensioners and their families, 6 million beneficiaries of deceased workers, and 9 million disabled people and their dependents.

Since over two-thirds of seniors in the United States depend on Social Security benefits for most of their income, the program has emerged as a crucial element of retirement security. Similarly, for more than 8 out of 10 disabled workers, Social Security is their main source of income. For three out of every ten workers, welfare is their entire source of income. Two million parents and children benefit from Social Security, the largest program for promoting income security. More than 22 million people were kept out of poverty by Social Security in 2012, making it our nation’s most effective anti-poverty program (Simpson et al. 2021).

Over the past three decades, however, inequality has posed an increasing threat to shared economic stability. While most Americans have seen their salaries decline or remain flat as prices rise, those at the bottom of the pay range have experienced significant improvements. The Great Recession increased overall inflation-adjusted income between 2009 and 2013, with the richest 1% of families benefiting from this increase to over 76%. During the next 30 years, Social Security payments are projected to increase from 4.3 to 6.1 per cent of GDP, although collections are only projected to reach 4.7 per cent of the total (Board of Trustees 2008). The gap between income and expenses widens even further when the issue of financing the elderly’s retirement consumption is seen in a broader context. For instance, Social Security and Medicare spending is anticipated to increase from 7% of GDP to 13% by 2035 and nearly 17% by 2082 (Gechert et al., 2021).

Future budget rebalancing for Social Security is a well-known concern. Another essential aspect of Social Security reform is the system’s ability to withstand future unpredictability. The demographic factors affecting how Social Security is funded in the future are only approximations. An institution that has undergone reform but cannot adapt to shifting circumstances is unlikely to ensure long-term solvency. As a result, resilience must be considered when comparing various reform options (Simpson et al. 2021).

There have been numerous reform proposals because considerable changes must be made to put Social Security back on a healthy financial footing. Many involve “parametric” adjustments, which alter key elements of the current social welfare system (including taxation rates, tax bases, payment formulas, and eligibility). Other proposals advocate for more fundamental changes to the program, such as developing personal private pensions (PRAs) to supplement or partially replace Social Security’s current defined benefit. The challenges, ambiguities, and effects of change on the system as well as the larger economic and financial environment, are examined in this section (Gechert et al., 2021).


Afonso, A., Jalees, J. T., & Venâncio, A. (2021). Taxation and Public Spending Efficiency: An International Comparison. Comparative Economic Studies, 1-28.

Gechert, S., Paetz, C., & Villanueva, P. (2021). The macroeconomic effects of social security contributions and benefits. Journal of Monetary Economics, 117, 571-584.

Roth, C., Settele, S., & Wohlfart, J. (2021). Beliefs about public debt and the demand for government spending. Journal of Econometrics.

Simpson, J., Albani, V., Bell, Z., Bambra, C., & Brown, H. (2021). Effects of social security policy reforms on mental health and Inequalities: A systematic review of observational studies in high-income countries. Social Science & Medicine, 113717.


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Select two of the three cases presented below and prepare a three-page written analysis of each case (six pages total). These case studies apply real-world concepts you have studied during this course.

Government Spending Taxation and The Economics of Social Security

Government Spending Taxation and The Economics of Social Security

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Case 1: Government Spending and Taxation

Read Special Topic 1, pages 404 through 418 of Macroeconomics: Private and Public Choice. You may also want to review Chapters 5 and 6, as the role of the government and the political process were covered in detail.

Using the Government Spending and Taxation case, Chapters 5 and 6, the knowledge you have gained in this course, as well as at least three additional credible resources, analyze the case by addressing the following:

  • Describe how government spending and the composition of the government changed in recent decades. In other words, in what areas has the government cut spending and in what areas has the government increased spending in recent decades?
  • Determine if this government spending and composition change will help Americans achieve a higher living standard. Be sure to support all opinions with research.
  • Assess if democracy can survive if most U.S. citizens pay little or nothing in taxes while benefiting directly from higher government spending. Why or why not?
  • Propose the composition of government, government spending, and taxation that you believe would work best. Be sure to be specific and support your proposal with research.

Case 2: The Economics of Social Security

Read Special Topic 2, pages 419 through 428 of Macroeconomics: Private and Public Choice.

Using the Economics of Social Security case, the knowledge you have gained in this course, as well as at least three additional credible resources, analyze the case by addressing the following:

  • Explain how the Social Security system’s basic principles differ from private insurance.
  • Determine how Social Security affects the economic well-being of blacks relative to whites and Hispanics.
  • Assess if the current Social Security system promotes income equality. Why or why not?
  • Propose how the Social Security system could be modernized to ensure long-term solvency and fairness in distribution. Be specific and support your proposal with research.

Case 3: Keynes and Hayek: Contrasting Views on Sound Economics and the Role of Government (Case 4 in the text)

Read Special Topic 2, pages 439 through 444. You may also want to review Chapters 11 and 12 of Macroeconomics: Private and Public Choice as the role of government and different views of government intervention were discussed.

Using the Keynes and Hayek: Contrasting Views on Sound Economics and the Role of Government case, Chapters 11 and 12, the knowledge you have gained in this course, as well as at least three additional credible resources, analyze the case by addressing the following:

  • Describe briefly how Keynes’s and Hayek’s economic theories and views differ.
  • Contrast the two views on how savings may harm or benefit the economy.
  • Compare the two views on whether the economy would fluctuate more or less over the business cycle without government intervention. Be sure to address both the market economy’s inherent stability and the impact of government interventions to steer the economy.
  • Hypothesize which economist theory, Keynes or Hayek, you believe is more accurate and why. Be specific and support your hypothesis with research.

Your Cases: Applying Economics to the Real World final project

  • Must be six to seven double-spaced pages in length (not including title and references pages) and formatted according to APA StyleLinks to an external site. as outlined in the Writing Center’s APA Formatting for Microsoft WordLinks to an external site. Resource. Each chosen case should be covered in approximately three pages for a total paper of six pages.
  • Must include a separate title page with the following:
    • Title of the paper in bold font
      • Space should appear between the title and the rest of the information on the title page.
    • Student’s name
    • Name of institution (University of Arizona Global Campus)
    • Course name and number
    • Instructor’s name
    • Date submitted
  • You must use at least three credible sources besides the course text for each case.
    • The Scholarly, Peer-Reviewed, and Other Credible SourcesLinks to an external site. The table offers additional guidance on appropriate source types. Please get in touch with your instructor if you have questions about whether a specific source is appropriate for this assignment. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.
  • Avoid over-dependence on direct quotes. Direct quotes are a great way to strengthen our assertions and provide support. However, avoid using excessive direct quotes instead of original thoughts. Direct quotes will not meet the requirements of analysis, application, and critical thinking. Please ensure not to overuse direct quotes to avoid losing points for this. Review the Integrating ResearchLinks to an external site—Resource from the Writing Center for additional guidance.
  • Must document any information from sources in APA Style as outlined in the Writing Center’s APA: Citing Within Your PaperLinks to an external site. Guide.
  • Links to an external site.Must include a separate references page formatted according to APA Style as the Writing Centre outlines. See the APA: Formatting Your References ListLinks to an external site—Resource in the Writing Center for specifications.

Carefully review the Grading RubricLinks to an external site. For the criteria that will be used to evaluate your assignment.

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