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Chapter 14: Problem 3

How are current budget deficits linked to higher taxes in the future?

Short Answer

Expert verified
Current budget deficits lead to increased public debt. To repay this debt, the government may need to increase its revenues, which often results in tax increases in future.

Step by step solution

01

Understanding Budget Deficit

A budget deficit occurs when government expenditures surpass its revenues. In order to fund this deficit, the government needs to borrow money, increasing the public debt.
02

Public Debt Repayment

The government has to repay its public debt along with interest over time. When a government's debt grows, it may need to increase its revenues to be able to repay it.
03

Tax Increase

One common method for the government to increase its revenues is by increasing taxes. Therefore, a budget deficit, by increasing public debt, can lead to higher taxes in future.

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Most popular questions from this chapter

Define: a. national debt b. budget deficit c. budget surplus

Suppose the Fed were to create enough money to pay off the entire public debt. What would happen to prices? Explain your answer

Is a sales tax regressive, proportional, or progressive? Explain your answer.

What three federal taxes together account for approximately 92.3 percent of federal government tax revenues?

"It is possible for a high income earner to pay more in taxes than a low income earner under a regressive income tax." Do you agree or disagree? Explain your answer.
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