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Argument against Tax Bailouts - Essay Example

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May 13, 2012 Argument against Tax Bailouts 2008 economic crises, triggered by the collapse of the subprime mortgage industry in the US, resulted in a need for massive government bailouts to prevent a sudden decline of large corporations going into bankruptcy…
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Argument against Tax Bailouts
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Download file to see previous pages Advantages to be discussed are: bailouts are needed to ensure that big corporations whose collapse will impact several industries can survive; bailouts are a necessary economic stimulant to jump-start the shaky economy; Bailouts are essentially government loans which the corporation receiving must pay back hence, the money will be returned; Disadvantages to be discussed are: bailouts use taxpayer money, which diverts much needed funding from other government programs and institutions; bailouts are band-aid solutions as they deal with the symptoms, not the main problems and do not always work; bailouts are against the free market principals and promote an environment where big corporations can take reckless risk knowing the government will pull them out. Despite the perceived advantages, tax bailouts are a major cost to tax payers and should not be used as a solution to prevent corporations who have placed themselves in difficult positions through mismanagement. As of July 24, 2011, the United States government has handed out tax bailouts totaling well over $2.5 trillion with a commitment to provide further support of $12.2 trillion (The New York Times). These funds can be directed to improve the government’s social services and infrastructure. However, large corporations, who are at the brink bankruptcy due to mismanagement and high risk taking, will end up receiving these funds. However, some would argue that these bailouts are necessity in order to prevent limit the ripple effect from the collapse of big corporation. Bailouts are needed to ensure that big corporations whose collapse will impact several industries can survive. These too big to fail corporations, if they were to collapse the, system would not be able to hold up against such a significant jump in unemployment numbers. Given the cross-functional nature of corporations today, the impact would have been felt in other industries; job losses would mean a drop in consumer spending, which would impact the retail industry (as an example) and so on. In order to prevent such a ripple effect, bailouts are necessary. Bailouts are a necessary economic stimulant to jump-start the shaky economy. By implementing a bailout, government can prevent loss of jobs, which means that consumers will continue to have disposable income to spend. This will boost the industries that manufacture the goods and services thus stimulating the economy and keep it steady. Consumers without any source that provides them with disposable income, example jobs, will hold back the spending. This will cause lower retail expenditures thus resulting in slow economic growth, which can lead to a recession. Thus, to prevent such dangerous movements, the bailout is required. Bailouts are essentially government loans, which the corporation receiving must pay back hence, the money will be returned. The government has the upper hand in dictating the conditions upon which the bailout is issued. In the case of the automakers, governments, in exchange for the bailout, received an ownership stake in the company, for example General Motors, thus will receive dividends and interest once GM starts generating revenue. Part of the deal with the big corporations is that the bailout money has to be returned once the crisis has been averted and ...Download file to see next pagesRead More
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