Justification of Taxpayer Resources Used for Corrective Actions

Role of Government in the Budget Process

The budgetary process begins when the president submits a budget request to the U. S. Congress in conjunction with the Office of Management and Budget, with recommendations for how much the government should spend, how much tax revenue is needed, and how much of a deficit is permitted (Policy basics, 2020). The president also lays out budgetary priorities, and the budget typically extends not only for a single year but also for the upcoming nine years, (subject to change) with evidentiary support from previous years and projected growth (Policy basics, 2020).

Next, Congress holds hearings, interviewing various representatives of the administration, and passes its own budget resolution. This concurrent resolution does not go to the President to be signed or vetoed, and cannot be filibustered (Policy basics, 2020). In recent years, Congress has not been able to agree on such a resolution, resulting in the previous year’s resolution to carry over (Policy basics, 2020). Finally, Congress considers various appropriations bills to enact and later reconcile the budget (Policy basics, 2020).

Role of Government in Correcting Externalities and Market Failures

Although the monetary policy set by the Federal Reserve has a substantial impact upon the economy, government can similarly take an aggressive role in correcting the influence of externalities upon the country that monetary policy cannot. “An externality is a cost or benefit of an economic activity experienced by an unrelated third party” (Externality, 2022, par.1). For example, if might be less expensive for consumers to buy cars which generate pollution, or to buy cheaper products even though the factories which produce such attractive items generate substantial waste. By levying a tax upon inefficient vehicles, or passing legislation to ban certain products that release toxins into the environment, the government can lessen the impact of such negative externalities upon the economy, effectively enacting a market correction that the invisible hand of the marketplace cannot.

However, the government can also encourage the development of positive externalities. Examples of positive externalities might include a company investing in infrastructure, or the discovery of a new drug which has substantial public health benefits in stemming the spread of disease, beyond the beneficial revenue generated from the company’s investment in R&D (Externalities, 2022). In such an instance, the government may wish to extend tax credits to support organizations which engage in beneficial activities as part of their own daily business, to generate the hopeful production of more positive externalities for citizens.

Finally, the government may need to correct market failures. Examples of this include so-called bailing out of powerful companies such as banks which were too big to fail or companies such as GM which had a very substantial role in providing jobs and essential products for Americans (Davis, 2021). The government may also use stimulus checks to citizens to bolster spending after an unexpected event, such as the recent pandemic, which resulted in job loss or slowdowns. Again, this is an example of correcting the invisible hand of the marketplace.

Justification of Taxpayer Resources Used for Corrective Actions

Some classical economists stress that the government has no role in correcting externalities or market failures, arguing that this will, for example, merely encourage companies to take more risks with their investments, with the expectation that the government will step in to protect them. While there may be some truth in this assertion, however, it is equally true that often the people who suffer the worst from uncorrected externalities are those who have no power over the companies perpetuating them. For example, someone may live near the runoff from a polluting factory, even though the poor resident is not purchasing the company’s products and generating its revenue. Many Americans who had no role in the subprime mortgage crisis of 2008 still lost retirement savings as a result of the unraveling of the banks, and bailouts bolstered confidence in the U.S. economy once again. As well as justice, the government has an important protective role, to prevent citizens from becoming unhealthy or failing into poverty.