The Pros And Cons Of Federal Deficit Spending

There has been much debate about federal spending in the past decade. Many people argue that the federal deficit is too high, demanding spending cuts. Others argue that deficit spending is needed to mend a broken economy. So what’s what, and who’s right? This paper will define deficit spending, how it works, advantages, disadvantages, as well as short and long-term consequences.
Deficit spending is defined as, “When a government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments.”(Deficit Spending, 2014). Deficit spending is spending more money than what is earned. How is this possible? The answer is easy, borrow the money. Many people
For instance, suppose your household income is $60,000.00 per year, equating to $5,000.00 per month. This is the total amount available to pay the bills, similar to the Gross Domestic Product (GDP) of a government. Let’s say that your total spending in a month, including all bills is $7,000.00. This equates to a $2,000.00 deficit in spending, which borrowed money is needed to foot the bill. If the situation remains the same at the end of the year there exists a spending gap of $24,000.00 with interest accumulating. Many would call this irresponsible. This may be true however; there are always advantages and disadvantages to any
The cost of a war is incredibly high, and the taxpayer’s money is what funds it. Deficit spending allows government’s upfront cash in hand that can be repaid over a long period. It is similar to big purchases made by a person using a credit card; enabling the consumer to pay back the debt in small increments over months or years. This process, known as tax smoothing, is described as, “A good fiscal policy is one where tax rates are relatively constant. In the face of a rapid increase in spending, such as a war, the best policy is one that pays for the spending increase over many periods of time, not in one year.” (Cooper & John, 2014) The short-term advantage is prevention of disproportional tax increases likely to upset taxpayers, causing loss of support for a war. Deficit spending is best used as a short-term method to cover spending gaps. Using it for long term spending or significant amounts can result in adverse effect to the