Balancing Budgets by Raising Taxes and Cutting Spending - Research Paper Example

?Donna Purcell Order #532605 03 May Should United s Governors Balance Their Budgets by Raising Taxes, Cutting Spending, or a Combination ofBoth? It is only natural to realize that some things that have happened in the past will directly affect what happens in the future. Therefore, one has to consider specific scenarios that have occurred in the United States which began in the 1980s with the mergers, acquisitions, takeovers, and buy-outs. Nothing happens without future consequences. Mergers, acquisitions, takeovers, and buy-outs are all a part of the business “game.” It’s merle an exchange of ownership that commonly involves stocks and assets that are transferred to another owner in exchange for up front cash or stock options in most cases that benefit high level executives. The “game” presents no investment in the future of the company or corporation, its merle an exchange of wealth. This scenario contributes many problems to the current operating business atmosphere. Mergers bring about immediate economic problems that include, loss of markets to foreign competitors, continuing trade deficits, inadequate operating capital, declining productivity, debt heavy corporations, and loss of many jobs. The debt is due mainly to financing in order to carry out the merger. These problems plus lagging research and development add to the complications of business operations after the merger is finalized. Another factor that has played a significant role in the situation of state and federal government budgets now are government financial bailouts. The first of these was the Savings and Loan Bailout of 1989 due to more than half of America’s Savings and Loans failing between 1986 and 1989. This was primarily due to lax government lending policies. These business bailouts have directly affected the budget, deficits, and economic stability of our federal and state governments. The US passed the Emergency Economic Stabilization Act in October 2008 for a $700 billion financial sector bailout. This resulted in the bank rescue of 2008, which called for a $250 billion cash infusion into the banking system. The bailout of Bear Stearns in April 2008 ended in lending the firm $29 billion to JP Morgan to buy the troubled firm. Fannie Mae and Freddie Mac collapsed in the late summer of 2008. The federal government committed up to $200 billion to save both these giant mortgage lenders. Also $100 billion in cash credits was guaranteed to each of them to prevent bankruptcy. In September 20089 the federal government took control of American International Group (AIG), who was one of the largest insurance companies in the world. The government took control of the company and guaranteed them $85 billion in loans. In addition, the government took a 70.9 percent equity position in AIG, making this the first time in history that the government controlled a private insurance firm. These are all major contributors to the economic environment of today. Can the government continue to bail out troubled businesses and over-extend themselves’ with even more debt? Economics is unpredictable and no one can say what the future holds. But within this scenario, the federal and state budgets and deficits have to be controlled by some means. With these factors in mind, would an increase of taxes on a federal and state level fuel the growth of the economy? In retrospect the government must look for ways to cut budget spending with little or no detrimental feedback to private businesses and corporations. It’s the common public consensus that government, both federal and state, need to make cuts; and unnecessary government spending seems to be one option. There are several arguments about government bureaucracy, but its obvious that there is a great set up for civil servants. When hired, they are put on probation for one year, after that they are granted tenure unless they do something illegal or make an unforgiveable error; their job security is all but ensured. This alone, would prevent federal and state representatives from voting for cuts that effect their own jobs. The Bush Administration pushed for at least 15 percent of government jobs to be put into the private sector. Those jobs were defined as, commercial activities, such as running cafeterias, making travel arrangements and other routine jobs in the private sector. The government, also, hires private companies to pick up trash, run prisons, and collect traffic tickets. However, most changes that have been instilled in the past and present do not call for cuts in political jobs or managerial ones; and typically those jobs pay higher salaries. In a recent public poll eight out of ten Americans believe their states are currently facing budget problems. This poll has changed very little from 2003. There is very little public support for a federal government bailout. Sixty percent of the people polled feel that if the states can’t balance their budgets, they should deal with the discrepancy themselves. This usually means raising taxes or cutting services. When asked about the federal budget deficit, 65 percent were in favor of major government program cuts and increasing taxes. The consensus seems that those are the only two major means of making cuts to both federal and local budgets. Republicans are more likely than Democrats to propose budget cuts in their own states. The only spending cut that receives major support by the republicans is reducing the pension plans of government employees. Even fewer people favor cuts in health care, education, roads, and public transportation. It is essential in a free market, capitalistic society that private business must produce results in order to stay in business. Workers are held accountable for their performance, and if you do not work up to standards and produce results you are terminated for poor performance. Layoffs are very common, and the workers have absolutely no say in who is let go. In some instances this sparks motivation to work harder, and become more innovative; however, in some instances it creates instability and fear which is detrimental to workers. On the other hand, some argue that government jobs inspire neither motivation nor innovation because they are so stable. There too, it could inspire innovation due to the stability of the job and no fear of loss. It is a known fact that there are more opportunities in the private sector to make greater sums of money, however, there is a tremendous risk involved. Also, in the private sector you may be forced to work long hours either for yourself or an employer. Government jobs punch a clock and most are closed by 5:00 p.m.; lunch hours and breaks are guaranteed. An article in the USA Today puts an average hourly rate at $39.66 per hour in total compensation for state and local government workers; in comparison to $27.42 for private-sector workers. With those figures, it seems viable that more government jobs should be shifted to the private sector. Since the private sector is fueled by innovation and creativity, any government cuts or implementation into the private sector will benefit private business. There too it instills a sense of accomplishment and dedication to anyone who owns their own business. There are downsides to owning your own business, but if a private business is successful its rewards greatly outweigh its downsides. In the private sector, you take care of your own economic well being through your own business ventures or your own merits. Raising taxes could have a very negative effect on private companies. Raising taxes on small private business will hurt competition, prevent creation of new jobs and cut benefits. Some states also plan to raise unemployment taxes in order to restore jobless benefit funds. It’s a vicious cycle, the money has to come from viable sources. The dollar is currently at an all time low, which means the fate of the dollar is in the hands of the government policymakers; those who are in charge of reducing the budget deficit and restoring a healthy economy. Economist feel the dollar is doing exactly as expected. Currency is driven by expectations of economic growth and interest rates in relation to other economies. Current interest rates favor investing in other currencies, and our dollar must be cheap enough to attract enough overseas money to support America’s huge funding needs. The main objective of producing a thriving economy is to put more money and power back into the hands of the American people. The factors discussed weigh heavily on government, and what is duly necessary to make our economy thrive. The research has shown that there are many areas within the government that can handle major cuts in spending. Favoring a raise in taxes, will only put a heavier burden on the very area of private sector business that needs to maintain the confidence and stability necessary to compete, and remain a major player in fueling our economy. Entire Websites: Jacowski, Tony, “Government Job vs. Private Job.” Web. 03 May 2011. http://ezinearticles.com/. Cooper, James C. “Dollar Value: New Low Threatens Long-Term Growth.” The Fiscal Times Web. 02 May 2011. Davis, Marc., “Top 6 U.S. Government Fianancial Bailouts.” Investopedia Web. 03 May 2011 http://investopedia.com/. Click, Mark; Abere, Andrew. “Mergers and Acquisitions in the Age of Wall Street: An Assessment.”, Rev. 1095, 1990. Web. 03 May 2011. http://heinonline.org/. Mendel, Ed. “Government pay lower than private sector?” Web. 03 May 2011. http://calpensions.com/. Mannion, James. “Government Bureaucracy Versus the Private Sector.” Web. 03 May 2011. http://netplaces.com/. Fewer Want Spending to Grow, But Most Cuts Remain Unpopular: Changing Views of Government Spending. “Pew Research Center for the People & the Press.” Web 03 2011. http://people-press.org/. Stevenson, Richard W., “Government May Make Private Nearly Half of its Civilian Jobs.” New York Times Archives, 11 November 2002. Web. 03 May 2011. http://nytimes.com/.gov Young, Charlotte, “State Recession Troubles: States Plan to Raise Unemployment Tax Business.” Web. 03 May 2011. http://atlantapost.com/. Read More