• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Tax Bungle

Extracts from this document...

Introduction

Ryan Marschang AP Macroeconomics Final Exam Essay Question 2 Tax Bungle George W. Bush, former President of the United States, during his time in office achieved very little. In fact, not only did he fail to achieve but he actually negatively impacted many aspects of society including the economy. Bush was inaugurated into office alongside a large surplus bequeathed from Bill Clinton. Furthermore, at the time of his entry into the White House, the United States was faced with three central challenges. The economy was slowly declining into a recession, inequality was on the rise and American institutions such as Medicare and Social Security were in need of funding and innovation. Bush's first action in office was to implement a tax cut that supposedly would stimulate the economy back into economic growth. However, the Bush tax cut, according to Joseph E. Stiglitz in his article "Bush's Tax Plan - The Dangers", was an utter disaster, in all respects. The proposed Bush tax cut had several key components. Firstly it was composed of an overall income tax cut. However, it was not just a simple tax cut, the income tax rate was reduced more for those in the highest tax bracket and less for those in the smallest tax bracket, as such it wasn't equal for all members of society; it severely favored the rich over the poor. ...read more.

Middle

The tax program only created 190,000 jobs, a little over half of the number of new jobless claims needed to be filled. Furthermore, this will only worsen as the deficit and interest rate begin to rise. Not only did the tax cuts create more inequality and fail to fulfill the trickle down theory but they also failed to stimulate the economy. The dividend tax cut in particular, failed to stimulate investment. Which was foreseen because investment still did not increase with lower and lower interest rates. As such, it was not a smart piece of fiscal policy. Generally, a tax cut would spur a jump in stock prices due to expectations. However, the Bush tax cut was only successful in creating a small, one day effect on stock prices. Extremely rich individuals are the only ones a dividend tax cut affects. And furthermore, although they are affected, when their demand for stock increases and they drive the price of those stocks up, others will simply invest elsewhere. The unsuccessful tax cuts will ultimately lead to a hike in the United States deficit because they are losing tax revenue. Furthermore, there is a strong correlation between deficits and interest rates; when interest rates rise, the deficit rises. An increase in the interest rate will deter investment and counteract the purpose or goal of tax cuts in the first place. ...read more.

Conclusion

It is of course debatable however this theory would show that the tax rate that generates the greatest amount of revenue is not 100% but rather a compromise tax rate. In my opinion it's not that easy to find a tax cut that would be the best in terms of stimulating the economy and reducing the level of income inequality. However, its general characteristic could be described. It would be one that would cut taxes for the poorest citizens and states/localities, as they will be the ones with the greatest propensity to consume and will be more likely to spend their increase in income. Furthermore, by cutting taxes for the poorer citizens it will further create equality in society. As such, this is very similar to the proposed tax cuts that Stiglitz proposes in his article. In conclusion, it is quite remarkable to see how poorly President George Bush utilized his surplus to help his nation. Bush's tax cuts failed to stimulate the economy and actually in turn, negatively impacted society by creating further inequality. Moreover, Bush failed to bolster the medicare and social security institutions and to increase the automatic stabilizers that would help the nation in midst of recession. In the end, Bush's tax cuts were simply a disaster and in order for fiscal policy to be utilized properly, tax cuts must be imposed in the way Stiglitz and I have proposed them to be. Let this be a lesson learned. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. 'Cigarette tax hike would benefit Tennessee residents' discuss.

    as people will be getting sicker and thus not able to work and also taking away valuable time of hospitals and nurses which could be used to help someone else. Figure 3. PPF curve of Tennessee Even though "Tennessee has one of the highest percentages of smokers in the nation"

  2. Extended Essay

    1.4 Problems and solutions of the old gas price subsidy system The Hungarian gas market does not work according to these principles. The Hungarian gas supply is not guaranteed , because the domestic natural gas production forecast shows a decreasing rate and the percentage of imports is really high, about 80%, most of which (about 75%)

  1. economics extended essay

    This effectively makes the demand for branded jeans in the shop relatively inelastic. The reason for this is also shown, that consumers prefer a better shopping atmosphere and the variety of jeans rather than the price of the product or the proximity of the location.

  2. What is the impact of the Notional Interest Tax Deduction system on investments in ...

    In addition, I give my greatest gratitude to the following people for taking the time to help me: * Mr Steven Gils, Deloitte and Touche * Mr Marcel Klaes, Amcham * Mrs Helen Triegaardt, Economics Teacher * Mr Dirk Eilers, Eilers 3.

  1. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    This legislation suggested the implementation of protectionist, or mercantilist foreign trade policies. The Smoot-Hawley act was put in place to cut off cheap imports in order to protect our agriculture. The law quickly evolved from agriculture into a multi-industry tariff.

  2. The Benefits of Microcredit to Bangladesh

    Micro-credit has succeeded in graduating the poor from poverty level to a self sustained position. Builds Trust among Poor: Grameen has put trust back into the picture. The working of the Grameen is largely through trust. It believes in the enormous potential of each and every human being given enabling

  1. Discuss the proposed introduction of a graduate tax in Scotland

    '' The tax is calculated less than 2.300 GBP and more than 10.000 students have all the requirements to pay the tax '' Mrs Fiona Hyslop , member of the Scottish National Party says .In this point we must also refer to Mr

  2. Defining Fiscal Policy and its application in India.

    Resources can be mobilised through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing. 2. Efficient allocation of Financial Resources The central and state governments have tried to make efficient allocation of financial resources.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work