Image result for GovernmentBudgeting and spending by government is different than that by the individual citizen. They seem to be working in opposing directions. What works for one may not work for the other. To thoroughly consider economic ideas, federal and state budgets must be examined.
Budgeting can consist of three different states. There is the balanced budget, the deficit budget, and the surplus budget. The economy is impacted in different ways by each state. This includes personal budgets as well.
The balanced budget for the government is just like we expect for an individual budget. Income (tax revenue) and spending are exactly the same. Again, as in our personal budgets, the deficit means spending exceeds income. The surplus budget means that spending is less than income. In the case of the government, income is from tax revenues. Each budget state impacts the overall economy in a different way.
The balanced budget maintains a static state of economy. The deficit means that the government is spending on programs more than it is taxing citizens. This reflects in more goods and services being available to individuals, above the tax burden. When the government is showing a budget surplus, that means the citizens are being excessively taxed, a condition that is detrimental to them.
Contrary to popular belief, a deficit in the government budget may not be all bad. It means that spending is being done on programs that will improve the economy. Money is being poured into the economy by the government, thus relieving some of the burden to citizens.
Though it might seem that a budget surplus would be a desirable state, in the case of the government, it means the worker is paying a higher rate of taxes, which is not good for the individual. As the money available for spending goes down, the economy takes a downturn.
There are three things that impact government spending. Taxes, welfare spending, and the balance of the budget are all factors. They each affect the economy in a different way, on both the national and personal levels.
The above three factors impacting the budget are themselves impacted by fiscal changes, both automatic and discretionary. Automatic changes are natural changes that occur over the course of economic cycles. Discretionary changes occur when efforts are made to change the economy in some way, interrupting the natural cycle.
Discretionary changes occur when government agencies decide to change something about the spending pattern, such as decreasing the amount spent on roads or education. Usually these changes are made due to some aspect of the economy seen as in crisis.
Automatic changes occur when the economy is left alone to cycle as it normally does. Allowed to cycle automatically, the supply and demands will balance out. When the economy is on the upswing, there will be more tax revenue and less need for welfare spending. Still, there will be less money available for spending.
Interfering with the normal economic cycle can cause changes in the economy that may or may not be positive. When the economy is failing, extra spending may be offered to relieve some of the stress. However, this requires added taxation to offset the expenses. All this can change the balance of supply/demand. If left alone, the economy will cycle through the supply/demand balances and there won’t be the need to budget for deficits or surpluses.
Does all this affect you, the individual, Yes, it does. When additional welfare spending is evident, there are more goods and services. However, this will eventually result in additional taxation. This will stress the individual in trying to balance their personal budget. Though the extra spending by the government will benefit the citizen in the short term, the increase taxation may negate those benefits.
Some economists believe that the government can affect individual budgeting needs by being available for extra welfare programs that help in the time of trouble. Again, they are there to tax to pay for these programs, thus causing the individual budget to suffer. Not all economists see it the same way. This is, of course, a very simplified view, with much more being involved that just what is covered here.

Post Comment