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Government Spending Taxation and The Economics of Social Security

Government Spending Taxation and The Economics of Social Security

As the new coronavirus spread quickly this winter and spring, the consequences of hollowed-out government agencies, chronic overinvestment in public health, huge gaps in coverage, and inequalities in treatment were on full show. The consequences of an unequal distribution economy have also been felt, which leaves the wealthiest Americans comfortable, whereas millions of lower and middle families suffer in the best circumstances (Afonso et al. 2021).

And it’s not the greatest of times right now. To reduce the fatalities caused by covid- 19, the virus’s illness, the government has placed the economy into a coma — an economic recession imposed by the federal government. States and localities have lost power and shuttered pubs, restaurants, and other enterprises, forcing millions of laid-off employees to depend on massive federal assistance to make ends meet (Roth et al., 2021).s

The government has also interfered with in market in other ways, providing billions in bailouts on airlines and several other troubled sectors while haltingly ordering GM and 3M to produce ventilators and protective clothing under the Defense Production Act (Afonso et al. 2021).

The government has also influenced personal behaviour, advising and, sometimes, forcing individuals to remain at home, exercise social distancing, and wear masks outside, with fines or penalties in certain situations. Contact tracing, an attempt to monitor individuals exposed to the virus, is likely to follow, potentially invading the privacy of all Americans (Roth et al., 2021).

Federal expenditure, who pays what taxes, and how much the government borrows to cover the gap between taxes and spending all affect the economy’s growth. Healthy growth implies a stronger, more successful country with more possibilities for you, your family, and your community, including more employment, higher salaries, more funds to save and invest, and improved government services. Growth is also necessary for the American Government to retain its global leadership position (Afonso et al. 2021).

On the other hand, budget forecasts for the federal government are concerning for long-term economic development. Debt is expected to rise faster than the economy, reaching levels much greater than at any other time in our country’s history. As a result, private funds that might otherwise be spent on boosting worker productivity would be sucked up by government borrowing (Roth et al. 2021).

The government is expected to spend less on infrastructure, education, and fundamental research, which may help boost productivity and economic development. Interest on debt, Social Security, and healthcare programs are crowding out such expenditure, which will expand faster than the GDP under present law (Afonso et al. 2021).

Large, increasing, and economically nonviable tax expenditures — features in the tax law that favour some activities over all others while decreasing government income — will prevent federal revenue from keeping up with increased spending (Roth et al. 2021).

Policymakers must limit debt growth to guarantee a better economic future. They may prioritize spending programs that promote economic development, improve the efficiency of other programs, and change the tax system to generate adequate money effectively. Changes like this may help to alleviate debt’s economic burden (Afonso et al. 2021).

Democracy, in my opinion, cannot exist in this scenario. When most of the population fails to pay adequate taxes, the minority who do pay enough taxes lose their motivation to work. If the money generated from the high taxes imposed on the minority population is directed towards the majority, the situation will deteriorate. This contributes to inefficiency since most people who pay little taxes rely on government subsidies. Because a large portion of their incomes is taxed, the minority group paying more in taxes loses the motivation to work, resulting in increased unemployment. There would be social friction in the nation, resulting in conflicts between sectors, presenting a danger to the government since it will be without its primary source of income (Roth et al. 2021).

Democracy is a form of governance in which the population has the ultimate authority to choose the leaders to represent them. Democracy is founded on the idea that people elect their representatives, who will then form a government responsible for enacting laws that regulate the investments that keep a nation running smoothly (Afonso et al., 2021).

Although some politicians want to keep the government from expanding or shrinking, in the next decades, federal expenditure and taxation will have to rise substantially as a percentage of the GDP. This isn’t a proclamation of political values; it’s a reflection of basic realities: America’s ageing population, rising healthcare costs faster than the economy (especially even though technological breakthroughs continue), possible future threats to national Security, and current and potential domestic challenges like big infrastructure needs that can’t be put off indefinitely.

We predict that these variables will increase government expenditure by approximately 212 per cent of GDP between now and 2035, namely 20.9 per cent to an anticipated 23.5 per cent in 2035. To keep the deficit ratio from rising, revenues must increase at least as much (Roth et al. 2021).

In the next decade, I believe we should enable the debt burden to ascend as a cent of the Total in line with what would occur under existing rules, but we should change the budget’s composition by raising the reason for the increase above what might happen under federal regulations and paying for it with higher-income retiree benefit cuts and tax hikes. I also believe that we should implement bigger benefit cutbacks and tax hikes that are phased in over the next decade so that debt is reduced proportionally to Returns in the long run. Furthermore, to mitigate the next economic crisis, we should enhance the automatic stabilizers (Afonso et al. 2021).

Because government debt cannot grow forever in proportion to the economy’s growth, existing spending and revenue laws are unsustainable. Furthermore, even if debt does not continue to rise in the future, permitting debt to remain at such a high level would incur substantial expenses. Private capital investment may be stifled by federal debt. High debt also limits the “fiscal space” available to react to unforeseen events. Our choices will be more limited if we have another financial meltdown or severe recession, with debt reaching 90 per cent or even 86 per cent of Its GDP instead of 35 per cent. Those arguments suggest that all other things being equal, the government debt should be reduced significantly and rapidly (Roth et al. 2021).

The Economics of Social Security

 An injured worker may expect his benefits to be provided to him and his descendants or survivors without excessive limitations since his payments assist in covering the expenses of the benefits. Knowing that he may plan independently without worrying about depleting all his money and resources if his income stops encourages him to supplement his protection with retirement savings, private insurance, house ownership, and other investments (Gechert et al. 2021).

The program’s contributing nature also promotes a proactive approach toward it. Knowing that the current program’s funding and any changes made are based on social security payments that he contributes to, the employee has a personal investment in the program’s soundness. Another key concept is that coverage is required to the greatest degree feasible. A community cannot be safe if significant numbers of its inhabitants are not covered against loss of earnings caused by the family provider’s retirement, incapacity, or death. Many individuals needing protection would not join if the program were not mandatory. Many low-income employees, for example, might opt not to make social security tax payments even though they understand the need to protect themselves (Simpson et al. 2021).

This is due to the difficulties they have in fulfilling their present requirements. Ultimately, they’d have to rely on the government’s general income to keep them afloat. Only workers in business and commerce were covered when the social security legislation was originally established.

Since then, coverage has been expanded to virtually every occupational category, including city self-employed, domestic staff, agricultural workers, and the Armed Forces (Gechert et al. 2021).

African Americans have severe economic disadvantages, making social insurance programs a priority. The significance of Historic, Survivors, and Insurance Coverage (OASDI, or Retirement Benefits) benefits and Helped Put Security (SSI) payments in helping at-risk populations may be better understood by looking at how African Americans utilize them (Simpson et al. 2021).

Previous studies have examined different aspects of the connection between Retirement Benefits and African Americans. Many studies, for example, have looked into Black people’s low deferred compensation receipt rates disproportionately at the importance of children’s benefits for African Americans. This study adds to that previous work by documenting the economic and demographic features of Black American OASDI and SSI users using the American Survey Research (ACS), a modern, publicly accessible, and extensive data source. Its goal is to set the foundation for further in-depth studies of how Black People engage with Social Security and other related programs in the future (Gechert et al. 2021).

The nation’s Social Stability sector has long been a pillar of economic Security, providing financial support to virtually all-American employees and their families in the event of retirement, disability, or losing a main earner. Under the program, 239 million employees aged 20 and above are covered. In 2013, 58 million individuals received Social Security payments, including 360 million retirees and their families, 6 million heirs of dead employees, and nine million disabled people and their dependents (Simpson et al. 2021).

Social Security has become a critical component of retirement security in the United States: almost two-thirds of seniors depend on the program’s benefits for most of their income. Similarly, Social Security is the primary source of income for more than 8 out of 10 disabled workers. Welfare is the sole source of income for three out of ten of these employees. Social Security is also the biggest income security education program, with two million children and parents receiving critical benefits. Social Security is our country’s most successful anti-poverty program each year, keeping more than 22 million people out of poverty in 2012 (Simpson et al. 2021).

However, inequality has posed a growing challenge to shared economic stability over the last three decades. Many at the end of the pay scale have made huge gains, while most Americans have seen their earnings fall or remain stagnant while prices rise. Between 2009 and 2013, the wealthiest 1% of families reaped approximately 76% of overall inflation-adjusted income increases due to the Great Recession. Social Security payments are anticipated to rise from 4.3 per cent to 6.1 per cent of GDP during the next 30 years, but receipts are expected to reach just 4.7 per cent of the Total (Board of Trustees 2008). When the problem of funding the elderly’s retirement consumption is considered in a broader context, the disparity between income and expenses becomes even larger. Social Security And Medicare expenditures, for example, are expected to rise from approximately 7% of GDP to about 13% by 2035 and nearly 17% by 2082 (Gechert et al. 2021).

Rebalancing Social Security’s budget for the future is a well-known issue. The system’s resilience to future uncertainty is also crucial to Social Security reform. The demographical variables that will influence the future financing of Social Security are just estimates. A reformed institution that cannot adjust to changing conditions is unlikely to guarantee long-term solvency. As a result, resilience must be considered while evaluating different reform alternatives (Simpson et al. 2021).

The adjustments needed to get Social Security back on a financially sound basis are significant, and many reform ideas have been proposed. Many of them include “parametric” changes, which modify fundamental characteristics of the current Social Welfare system (such as taxation rates, tax base, payment formula, and eligibility). Other suggestions call for more fundamental reforms to the program, such as creating personal private pensions (PRAs) to augment or partly replace the presently defined benefit of Social Security. This section examines the system’s difficulties, uncertainties, and the consequences of change for the system and the wider economic and financial environment (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.

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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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