Major Issues on Report in Macroeconomics - Essay Example

Macroeconomics Report (Answers are given below according to their question 1a. Ellen’s income annual income in 1993 was $67,000 and she was exempted $3500 from her taxes. According to the table given below, the tax bracket for Ellen is 31% of her annual income. Total taxable income Marginal tax rate 0 – $22,100 15% 22,100 – 53,500 28% 53,500 – 115,000 31% 115,000 – 250,000 36% 250,000 + 39.6% The table suggests that the tax bracket for Ellen would be as follows: ($115,000 minus $53,500) x 0.31: $19065. The calculation means that Ellen will have to pay $19,065 as taxes from annual income of 1993. Ellen’s tax bracket also suggested that whatever she earns that is between $53,500 and $115,000; she will be charged 31% of the annual earnings as tax that will be cut from her income. 2b: As the above table suggests, Ellen has to pay 31% of her earnings as income tax, which is $19,065. As $3,500 amount is exempted from her taxes, so the total amount of taxes she will pay for 1993 year’s total income will be: $19,065 minus $3,500: $15,565 2: Spillover benefits are the indirect or unexpected benefits provided to other individuals who are not directly involved in the decision making process regarding production or the consumption of a good. The consumption of different goods by the consumers sometimes benefits them in terms of providing them spillover benefits. This applies to a situation in which people are given free education but they do not pay taxes in return, or there is not taxation system applied on them. This can sometimes be called subsidizing the people. The resulting misallocation or the reduction in Federal Reserve can only be corrected by stopping providing subsidy to the consumers who are using that good or service, or taxing the people if they were not taxed before, or even taxing them higher than the amount that was applied before. This will mean to raise the tax brackets, i.e. upgrading the tax percentages each of the individuals have to pay. Providing benefits to the consumers who do not pay in return is termed as giving unexpected benefit and the real solution behind the correction of the misallocated resources would be to increase the amount of taxes in a certain region or whole country for some period of time so that the allocated money invested in that good or service is taken back. Then the taxes might be reduced as they were before. 3: There are various goods and services in which people enjoy spillover benefits. Let’s just call government as a production unit, education as a good, and public as consumers who will be benefitted through that good. The government will provide that good, i.e. education free to all the consumers in the public, and no direct tuition fees are collected. In return the government or that production company is not getting back anything in return. This will mean the public enjoying the spillover benefits over the services provided to them. The education is free in most of the countries in the world at school level where no hidden charges are taken. However, there are hidden charges, as the schools are government institutions and government collects money each year from the public in the form of taxes. Now a hypothetical case of a government providing free education to the public where taxation system is not applied properly will result in providing spillover benefits to the individuals in the public. A solution in case of this example would be the establishment of a strong taxation system so that funds are extracted from public to finance the educational budget to keep providing free education to the people. 4: Government expenditures call for the spending made by the government sector directly which includes, the goods and services (GDP), as well as the transfer payments. Key functions are undertaken by the government through the spending on different goods and services, and on transfer payments. An important example of government spending on goods and services will be the establishment of transportation system. Transportation systems, including urban streets, buses, subways, interstate highways, railroads, as well as air transit are the facilities provided directly by the government. These resources are also provided by the private sector, which does this activity with the assistance of the governmental bodies. Example of the transfer payments will be the borrowings made by the government. When a particular government has more expenditures than taxes collected, then it borrows money from financial markets by selling them their legal claims. The borrowing actually comes from the household sector through indirect resources. But in this case, the government is bound to pay back loans, and these loans are actually paid back through future tax revenue. 5: There are many advantages associated with the corporate form of the business enterprise. Firstly, there is a limited liability for owners. As the corporations are independent and separate legal entities, so the owners of a corporation are indebted but for a limited amount, which depends upon their share of the business. Also, the power of corporation’s successive achievements make it as a continuous business in which everyone gets benefits and even if a potential investor quits, there are other investors who replace the former. Thirdly, corporations feel ease in raising the money. As the investors know that corporations are not going to bear the losses, so they really have the idea of how much benefits in terms of their finance they are going to gain, and therefore invest more money, which raises their financial capital more quickly. There are disadvantages of corporate businesses, such as follows: the corporate businesses are complex in their organization and regulation. Many corporations have to pay the double taxes due to so many actors involved in a single corporation. Additionally, the limited liability of the corporations can also limit the credit capacity of the potential investors. Lastly, the corporations are run by a centralize management that includes key stake holders and all the important decisions are made only by those personnel. References: Cossa, Luigi, and Horace White. Taxation; Its Principles and Methods. New York: G. P. Putnams Sons, 1884. Print. Aaron, Henry J., and Michael J. Boskin. The Economics of Taxation. Washington, D.C.: Brookings Institution, 1980. Print. 5 Steps to a 5 Ap Microeconomics/Macroeconomics. McGraw-Hill, 2011. Print. Hamilton, Robert W., and Richard A. Booth. Corporations. St. Paul, MN: Thomson/West, 2006. Print. Read More