Current Economic Policy Essay
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From 2006 up to the present, the economy of the United State has been performing great in general. Gross Domestic Product increased by significant rate enough to encourage the foreign investors to invest in the country. Furthermore, more jobs have been created for the labor marker creating huge improvement on the welfare of the workers, thus, increasing their income. Around more than 850,000 jobs has been created in the economy from 2006 up to the present. Energy prices, on the other hand, seem to become worse after oil prices in the international market has been increasing sharply for the past years.
Because of the said increase in the prices of oil in the market, it negatively affects the non-energy goods and services since oil is one of the major components of production processes in most of the industries in the economy. Inflation also increased as a consequence of the increasing prices of the commodities in the market due to the rising oil prices. Inflation rate, since 2006, stood high enough to impose panic to the consumers and there is a possibility that the latter might just lower down their spending making.
Moreover, the housing industry also made the improvement of the GDP sluggishly and this is the side effect of the massive housing spending of the market in 2005 not to mention that the disposable income of the consumers today is not that high enough as compared to 2005. Although there are certain hindrances on the improvement of GDP or economic improvement of the country, still, the economy manages to offset those costs by the benefits derived from the good market condition of the international market which in turn advance the trade balance of our country.
In addition to that, increasing job opportunities makes the depletion in the consumption of the consumers to slow down since income of the workers improves as more job were created in the economy. Furthermore, labor productivity helps the private firms to reinvigorate their profitability and sales volume making the government able to charge higher taxes to be used for financing government projects for the economy. Proposed Economic Stabilization Policy
One of the possible way by which the US government could further stabilize the growth of the US economy would be through lower down the tax rate that the government has been charging especially for the multinational corporations. Through cutting down the tax rate of the companies in the market, especially those multinational corporations since it could offset the rising salaries of the laborers due to the high demand for laborers in the market.
It was identified that because of the high demand for laborers in the market due to the fast-faced growth of the economy for the past years, the bargaining power of the laborers for higher salaries increased imposing threats for a higher operational costs for the private firms. The improvement of the income of every household could helped the economy revitalized the housing market that is why an increase in the salaries of the laborers is badly needed in the market today.
So as not to sacrifice the welfare of the private firms which also contributes largely to the sustainable growth of the economy of the past years, the only option of the government is to lower down the taxes that they are charging from these people. In short, it is the government who would shoulder the burden or the costs of improving the housing industry not to mention that there is a great possibility that disposable income of the consumer group might increase due to the increase in their salaries.
For sure, the job losses on the part of the government due to the lack of fund to finance government projects after the taxes being collected to large corporation would be offset by the additional job vacancies being created by the private industry every month in the economy. This only points out that even if this kind of policy would slow down the construction of infrastructures for the public or any government services being offered in the economy is very insignificant as compared to those persons or group of person that will benefits from this kind of policy.
Policy Target The said proposed policy would only cover multinational and corporation type of companies for these are the business entities that employs the majority of the worker in the market. Moreover, international branches of the said corporation will also be included in the said proposed policy. For multinational company, tax rate would depend on the level of their profitability and sales volume.
Whereas, corporations or those companies that only operate on the US market would have a fixed tax rate just to account their financial capabilities and the amount of labor force that they are utilizing for their operation. Current Use of the Policy Well, so far, President George W. Bush actually advocating the importance of tax cuts in order to protect the interest of the producers or private firms in the market for they are the one who drags the economy towards progress as well as the increase in the salaries of the workers in the economy (Seib, 2007).
Moreover, the issue regarding this tax rate reduction becomes more interesting to the presidential candidates and serves as part of their platforms in their campaign. The reason behind the popularity of tax cutting to most of the presidential candidate is due to the fact that this issue encompasses not only the private sector but also the consumer and labor group of which the majority are voters for the up coming election.
Although politically driven, there is still a basis for the presidential candidates to propose and support such said kind of policy for the economy, and true enough, tax cutting is being viewed as one of the possible solution for the growth of the US economy to become more sustainable. But then again, after considering those benefits than can be derived from implementing this kind of policy, based also from the tax cutting model of President Bush, there is a little possibility that this would not be implemented in the near future alongside with other economic policies of the government.
Potential Problems and Issues Although the consumers and the private firms will be well-off from the shouldering of the government of the costs of high oil prices in the market, still, the insufficient amount of available budget for the coming fiscal period would surely made the provision of government project become sluggish. As most of the economists know, government plays a vital role in maintaining equilibrium condition in the economy like the provision of public goods.
These are goods that when provided by the private firms would only caused inefficiencies and ineffectiveness on producing such goods, thus, worsening the welfare of the consumer group. Like for instance, the provision of street lights, it is the government’s responsibility to give its citizens with street light for the security of the latter. By cutting the tax being charge to the corporation, there is a big chance of having insufficient funds for street lighting perhaps, or unfinished roads for a couple of months due to lack of funds and so on and so forth.
Tax, on the field of public economics, only causes losses on the societal welfare. It only creates gain for the society if it is being used as a correctional tool to put back the economy into its equilibrium state. Like in the case of negative externality emitters in the economy, the are being charged by higher tax that the usual amount in order to force them to cut down their production or to slow down their operation on the optimal level for the society.
The only point here is that, tax cutting would just make the budget deficit problem of the government to become worse assuming that the gains from the performance of the economy will not change that significantly for the next couple of fiscal periods. But since the Federal Reserve predicts that the US economy would still expand for the next period, then, tax cutting will not worsen the budget deficit of the government as what is being expected by some of the government officials.