Economics and Government

Obama simply wants to return the county to the tax structure that we had under Clinton. Back then the economy was in prosperous and surpluses instead of debt. As many people know that Obama’s tax policy gives away more money than will be generated by this massive tax increase. This is also a big increase on business owner to either pass along those tax increases to consumers in the form of higher cost for the goods or for those business owner will be force to lay off employees. This could drive the business to move to another country for cheaper cost.
Obama wanted to increase taxes on the rich people but there not that many rich people in the United States. Beside that, I found that it was kind of ridiculous that the rich should be taxed a higher percentage than the rest of the middle class but there are a pretty high percentage (roughly 30%) of the people out there who don’t even pay taxes. This idea of taking money from those who work hard and earn it, and giving it to those who don’t work, just encourages those who do work to work less. As for those who don’t work not to try and work more.

As for our city of Colorado Springs, has been using over the funds though sales and tax collections. According to the Gazette, our city and county has been cutting back on services such as city buses, park maintain, programs for adults. Our city sales and use tax collections in the month of October were down to 8.62 percent from a year ago, this is the lowest in 5 years. Our city does need some funding but sales tax hikes will not work. As for tourism, they only drive them outside of area to purchase expensive items. Property tax hike will also bring funding, but it also currently unoccupied pays a higher property tax than those that are. Can this be done without increasing tax? The taxes would return to normal levels once the property is occupied.

Thomas Paine wrote about intervention:

“Society in every state is a blessing, but Government, even at its best state, is but a necessary evil; in its worst state an intolerable one: for when we suffer, or are exposed to the same miseries by a Government, which we might expect in a country without Government, our calamity is heightened by reflecting that we furnish the means by reflecting that we furnish the means by which we suffer”

Thinking about Paine’s quote I again think about the intervention in our lives, and how in its worst state, government is intolerable. Recently, I presented an economic analysis to Tom Perkins, owner of Perkins at Motor City Dodge. This presentation that I made talked about the affects of the current financial crisis that the automotive retailers face. I was reluctant to talk about government intervention, however in the owners comments back to me, I learned that government intervention is the main cause of the automotive production turmoil. PEVA an organization owned and run by the fed, demands that automotive manufacturers produce and average gas mileage production, where each and every models is averaged and totaled together. This average must be at or above the government regulatory amount. What does this do to the production cost and price? Well the cost is affected because the average is ever-increasing, and this causes the technology to ever-increase, pushing costs up. Price wise, when the auto maker is forced to produce a bunch of cars that get un upwards average to offset the big trucks that they do sell (Perkins), the small economical cars sit and loose value. And since the cost was higher to produce them anyways, the prices rise and the automakers/sellers end up eating the loss. Tom Perkins is a first hand example of how government interference screws the economy. His answer is plain and simple; government needs to remove some of the barriers to do business.

It seems as though everyone has an idea on how we can save the economy these days...from multi-billion dollar private company bailouts to additional economic stimulus packages directed toward the American consumer – so I decided that I should put some of the knowledge I have gained in my public sector econ class and come up with a plan of my own. I am certain that the proposed stimulus package in the form of wealth transfer payments is not the most efficient means of stimulating our economy – hiring additional IRS agents to determine which individuals will receive a check is extremely expensive and the cost for postage alone to mail out 50 million checks would be $21 million. Certainly, there must be a more effective and efficient way.

The latest figures being thrown around by Congress for the economic stimulus package are somewhere in the $300 to $600 billion range. To help put this in perspective, you need to realize that $600 billion is more than the federal government spent in social security payments to retirees and the disabled in the 2006 tax year. I believe the most efficient and expeditious method would be to temporarily cut Social Security taxes from 12.4% to 6.2%. This would provide approximately $400 billion in stimulus to American workers and businesses over the next tax year. Of course, the US government would have to borrow additional money to make up for the uncollected revenue, but they are planning on borrowing that money anyway for their multi-billion dollar stimulus plan, and this method is much cheaper – there is no need to hire additional IRS agents to sift through 140 million tax returns or buy $42 million in postage stamps. The tax cut also could be effective immediately, instead of 6 to 9 months from now when the stimulus checks would finally be mailed out.

Not only would this plan be much more efficient, but the effects would be felt immediately as employers would see savings of 3.1% in their payroll costs and employees would immediately see a 3.1% raise. For each American worker earning $45,000 a year, the employer would see a decrease in their portion of the payroll tax by $1,395. That means for a small business that employs 50 workers at an average wage of $45,000, they would have an additional $69,750 in profit for the year. The business could use these additional profits to: A) hire more workers B) lower the price of their product to capture a larger share of the market C) keep the extra revenue and invest in capital to grow their business or D) take the additional revenue as personal income and spend it in our rapidly shrinking economy…buying new automobiles, laptop computers or video games. Unemployment levels have been rising rapidly lately, so this form of economic stimulus would have the greatest impact on unemployment numbers, as employers would immediately have more cash to spend to hire additional workers.

An average American worker earning $45,000 a year would have $1,395 more in their pocket at the end of the year, which means they could stash some of it away in a savings account or CD – this would give the banks the liquidity they need in order to start lending again. Hard working Americans would also invest greater amounts into the stock market as bargain shoppers seek to take advantage of stocks that are currently priced almost 45% below their previous values, and consumers would once again head to Circuit City and Best Buy to spend their new found wealth. The positive effects of this stimulus would also be felt over a longer period of time, as workers receive the extra cash each pay period rather than in the form of a one-time refund check.

As Barak Obama approaches presidency, there are many issues that he will face, and much "change" has been promised. The issue that has been most discussed recently is the economy. Something must be done. Michael Boskin, a professor of economics at Stanford University offored Obama some advice in an article from the New York Times and stated:

"His administration should also be suspicious of trying to pick economic winners and losers with subsidies, taxes and regulation. It doesn’t work. Ask the Japanese, the Koreans or the Europeans. Instead, the government should set general goals for the environment, energy and health care — and then let entrepreneurs, investors, venture capitalists and consumers decide how best to achieve them. No policy that cannot be commercially sustainable in the long run makes sense.
Any tax increases should be delayed until the economy has recovered. Raising tax rates is rarely a good idea, but it is especially foolish in a deep recession. On the budget and spending, he should try pilot programs to test his ideas. If they work at sensible cost, he will get broad support to expand them. If not, he should jettison or reform them."

I agree with his analysis that it is not a good plan to pick winners and losers, and then tax or subsidize them according to congressional incentives, but rather, it would be better to provide goals in the concerned fields and then provide incentives for entrapaneurs to reach them. This will prove to yield less government induced market failure, and more competition in the fields concerned.

As we have gone through and are going through the tax portion of this class it makes me curious as to what the actual new tax policies President elect Obama will implement. During the debates both he ans Sen. McCain constantly argued about the new tax policies they would implement. Both of them said the other one was lying about what they wanted to do. Barack Obama was also very vague about his plan. I think from what he said it could ber a good plan(if there is such a thing) but I am curious as to whether he will follow through with what he has said. This is a big deal, as taxes are always of great concern to the American people. With all that I have learned about taxes I dont think any plan is good but I am hopeful that President elect Obama can make the most of a bad situation and help the American people get back on their feet.

So it seems once again that companies that have the most impact in the economy get as much tax breaks as possible. Government things that the market needs to correct by giving these big companies tax breaks. Now what seems to be the big deal is that companies that could use a tax break don't get one. In this article they have oil companies getting the tax and then they sell it all over seas. The US taxpayers should not be subsidizing the fuel needs of foreign bio-diesel users. That tax loopholes needs to be closed immediately.

I keep hearing things that don't add up quite right. To begin with before Obama was elected he was trying to call the hype about him 'bringing back the economy' and trying to explain to people that it was probably going to take longer than expected, it wouldn't be over night, etc. So now he's being more ambitious? If he didn't think he could get away with what he first proposed then why is he making to task more difficult? Now he is also saying that he's going to hold off on the tax increases for those who make over $250,000 for two years, but he's lower taxes for the lower and middle class immediately, and while doing this he wants to take $700 billion and revive the economy by shocking it. I'm a little curious as to where this money comes from if the government is going to be making less from taxes. But wait it doesn't stop there, the government has 7.4 trillion dollars just waiting to be injected into the economy, to cause inflation because according to Charles Schumer we're dangerously close to deflation. Now I will gladly admit to anybody I have not been keeping up on my news (for most of the semester I have not had internet or television so I've relied on my poli-sci boyfriend to keep me updated to some extent) but last time I checked we had some extra inflation on our tails- so let's cause more so we can be extra sure we stay away from deflation? This is going to be a strange economic revival package that's for sure...

President-elect Obama outlined a plan, yesterday, in order to get us out of an “economic crisis of historic proportions.” His plan would create millions of jobs over the next several years. The jobs: rebuild roads and bridges, modernize schools, developing alternative energy sources and more efficient cars. It seems the government wants to make what is bad worse. Government failure and government failure has helped brings us to the economic crisis. They are quickly, too quickly, trying to find ways to fix what they caused in the first place. The free market is not really free, with government eyes and mandates everywhere. Government is the root cause of the credit crisis so what does Congress do? They passed a massive bailout package. I wouldn’t be surprised if down the line they do bail out the auto companies. I realize there are a lot of jobs at risk. But government mandates and the labor unions have pushed the auto companies into the corner. It just seems that additional mandates for “more efficient cars” is not the best plan just now. If they really want to help the economy, cut taxes, especially taxes on wealth. Capital gains taxes hurt more than they help. Over the last several months, I have heard stories about how people, on the assumption that President-elect Obama will raise taxes to pay his plans, have started selling large assets (such as the Miami Dolphins owner Wayne Huizenga) to avoid higher capital gains taxes in the coming years. Putting more people on the government payroll is just not the answer to rebuild this economy. Creating jobs is best left the entrepreneurs and private companies.

If the U.S. auto industry goes bankrupt, it would be "catastrophic" for the American Economy. Therefore, it would be irresponsible to not bail-out the auto industry. This is, of course, coming from the GM of Ford. He said the auto industry is "so interdependent" that if one company fails, the others will necessarily follow.

There are many reasons why a bailout of the auto industry would be a bad idea, but I will focus on just two:

1) If these auto industries are so interdependent that they sink or swim together, doesn't that raise some questions? Isn't the essence of a strong market a "survival of the fittest" through competition? It seems that in a normal market, one auto company would be rooting for the other to fail so it could snatch up the extra business. The auto industry, as it stands, is an oligopoly at best and a monopoly at worst. So if the government bailed it out, it would be doing the economy two disservices. First, it would be propping up an industry that obviously can't compete in the market, and secondly it would be supporting an oligopoly. It seems ironic that if the government decided to bail out the automakers, it must think the bailout would be good for the economy, yet by bailing it out, it would be supporting a market failure, which is bad for the economy.

2)As painful as it may be for Detroit, the failure of the auto industry would not be "catastrophic" to the economy. Sure it would hurt, maybe for a while, and certainly it would hurt much more for some than for others. But catastrophic? I don't think so. The economy is by far more service oriented than manufacturing oriented. We have seen this trend away from heavy industry towards service for the last several decades. So the failure of the auto industry is just the effect of the natural progression of our economy and our GDP. If we bail them out now, we are just delaying the inevitable.

Adam smith coined the term "the Invisible hand." The invisible hand demonstrated that, in a free market, an individal pursuing his own self interests tends to also promote the good of his community as a whole; each individual maximizing revenue for himself maximizes the total revenue of society as a whole.

In addition to the invisible hand created by free markets; we have the invisible finger created by governemnt. The finger of government is much like the finger of a child. The finger of the child often finds its way into places it shouldn't be; like going into the mouth after going inside the nose. The finger of government also goes into places it shouldn't, like intervening with free markets. Children have a hard time leaving a scab alone when it is so tempting to pick at it. Governemetns expereince the same temptations and just like a child, they can't resist. The difference between a child and a goverenment is the child has parents that tend to know whats best for the child, and through the efforts of the parents the child's scabs eventually heal. The government however does not have parents looking out for it. A government has its people whom, unless they were all economists, do not know how to heal the nations wounds (an economic recession). So the goverenment tends to act in a way a child would act without her parents; she gives into temptation and picks her scabs. America picks her scabs through $600 stimulas packages, $700 billion bailout bills, and even more recently, plans to try and save the american auto industry, and even worse, speculations have surfaced about a new stimulas package (I guess the original package was so successful, they figured they would try it again). So America's wounds continue to bleed as the scabs are repeatdly torn open through an interventionsim based governement.
As history shows us, economies will rebound after a recession. Just like a scab will eventually heal even if it is picked, but it is my opinion that the scabs of an economy will heal like those of a child in that the best way to heal them is to simply leave them alone.

Nationwide, computer and electronic waste comprises about 1% of the 230 million tons of garbage generated each year, and electronic waste is growing at three times the rate of other household waste. This waste is also more toxic than normal household garbage. Computers and other electronic devices contain toxic heavy metals, including arsenic, antimony, beryllium, cadmium, chromium, copper, lead,
mercury, nickel and zinc. It is estimated that 40% of all heavy metals in household garbage comes from electronic equipment. Although the metals, glass, and plastic in electronics are recyclable, more than 70 percent—or 3.2 million tons—of the electronic waste stream ends up in landfills. ( http://www.tchd.org/pdfs/electronic_waste.pdf).

On 9, November 2008, 60 Minutes, dicussed a story in regards to US technology waste (CRT's) and where this waste was going. Apparently to Hong Kong , according to 60 minutes, to sit outside on a land fill among many living habitants( pictures right and below of trash heaps in Hong Kong).





More than 42 companies were exporting American Cathrode Ray Tubes, that contain large quanities of lead and other computer related trash, that apparently was tracked from several locations like Denver. In our economics courses we have discussed the market externality of public garbage as far as "Dumping"on other countries. Like Pollution the public contributes individually to a cumulative waste that the market doesen't completly take care of. So in this case,does the US have an efficient level of waste? - Yes we have waste efficiency if the US continues to dump on other countries ( even if there is still a political problem about dumping). IF the US does not dump ;however, the US does not have waste efficiency (especially waste that has related chemicals that may or may not decompose in landfills). I am not sure how one could measure the efficient level of pollution i.e. numerical value for waste is just as difficult in determining. There are recycling plants such as NCER ( National Center for Electronics Recycling) , and LG Recycling ( partnership of LG electronic and waste managment inc. - Has expanded this program to Denver and other cities-), Electronics Recycling in El Paso County off Wahsatch Avenue ( 719- 219-3996), and El Paso County Hazardous Waste Recycling Center on MarkSheffel Road ( 719-520-7878).

Like pollution I would assume especially for Eubanks class that we would create a corrective tax to fix this market externality of waste. I think that this tax should be a flat tax on the consumption of a electronic product. This tax should be the same for each electronic device that is consumed intially so that people would be less likely to want brand new equipment and hold their existing devices for a longer duration ( since waste is created because many consumers want the latest technology and quickly discard a working electronic device). I think that by creating this tax on a newly produced good would create incentive for two things: Preventing more waste by wasting working electronic devices and 2) creating more income for recycling plants