Challenges Facing the American Economy in 2014 - Assignment Example

Challenges Facing the American Economy in Details Table of Contents Five Challenges Facing the American Economy In 2014 (https://www.aei.org/publication/five-challenges-facing-the-american-economy-in-2014/) Introduction The United States of America is facing massive economic difficulties on a scale that very few nations have ever experienced. Most people are naïve about the signs of this economic crisis, where it emerges from and how to stop it. While the nation obsessively persist on a mentality of becoming the superpower, the current economic status has quietly driven the country into becoming a second class country in many economic respect (Chaufen, 2014). The economic problems in the United State of America and the Eurozone are monetary and structural. It is quite unfortunate that politicians and Ideologues on both sides of the spectrum are majorly interested in quick fixes rather that the actual ground work of fixing the nation’s economy. During the past few years, the economy of the United States of America has faced major challenges. As the nation’s economy continue to spatter, research and studies have identified multiples areas that is really deteriorating the American Economy. Challenges Facing the America’s Economy. Taxation The sum total of the federal government taxes currently stands at 18 percent of the GDP. The local and state taxes have however increased substantially over this period. The total taxes from all the sources are a round 34 percent which is higher that 26 percent in the mid-50s, but slightly lower than 36 percent reached over the past 15 years. Over year the years most developed countries have lowered their corporate taxes leaving the United State of America to be among the developed countries that still has high rate of corporate taxation (Michael, 2012). This measure discourages investment in the country, which in turn reduces wages and holds production. America business faces serious challenges in taxes. Most market in the American Economy fall between demand and supply extremes and the incidence of taxation is shared by both the consumer and producer in proportional that varies. Most American population, who are majority of consumers pay more tax than producers thus resulting into a general high taxation. The e area paid by paid by the consumer corresponds to the general change in equilibrium price. The remainder of the price which is the difference between cost of production and the new price of that commodity, is paid by the producer. Inelastic supply, elastic demand: the burden is on producers The internal revenue service estimated that in 2002 the United States of America Tax gap was 345 billion. The tax gap is the difference between the amount actually collected and the amount of tax legally owed by the government. In 2006 the tax gap was estimated to be about $450 billion. Two years later it was estimated to be within the range of $450–$500 billion whereas unreported income was estimated to be approximately $2 trillion (Newman, 2013). For a substantial impact to be realized, the increase in tax would have to fall for both the affluent and the middle class. Extending the bush tax cut for the middle class and allowing it to rise only for household income that are over $250,000 would raise enough revenue to cut off the deficit by just around 10 percent over the coming decade (Mosley, 2013). Similar elasticity: burden shared The corporate tax problem is due to a complex tax code that has so many loop holes, perks and credits such that many multinational corporations of the United States of America pay no or very little taxation. This starves the national budget and imperils innovative research, public education and infrastructure which are the sort of public investment that aids to make the country’s economy competitive. Some of the worst America tax loophole are the offshore loopholes. This loop holes alone cost the national government treasury around ninety billion every year. This also create an unfair business environment between domestic business and the large multinational firms whose layers have come up with methods to shift the profit that they make in the country to the world’s tax haven countries whose profits are not highly taxed. For instant, some software corporates take patent for the products that they develop in the country and register them in other countries (Chaufen, 2014). When a consumer purchases their product they send a large portion of the purchase price to the tax haven country to pay for the use of the patent and therefore the corporation minimizes its corporate tax rate- sometimes even below ten percent. Health Care Costs The main objective of Obama health care law is to extent health coverage to thousands of people who are not covered currently. However, this law does not tackle another equally bigger problem which is the cost of health care that is rising very rapidly in the country. The pace and level of per capita health care cost growth of the country make the United State of America an outliner among developed nations and the intensions of trying to shift this coast from the private sector to the federal government will not solve anything. The cost of Medicaid and Medicare is projected to rise from 5.4 percent to & 7.2 percent in ten years and at least 9.6 percent in the next twenty five years (Stephen & Jeffrey, 2014). The affordable health care act tries to prevent faster economic growth by partly trying to make the nation’s health care system more efficient Growth in Real Per Capita National Health Expenditures, 1961–2013 Note: Data for 2013 is a projection. Source: Centers for Medicare and Medicaid Services, National Health Expenditure Accounts; Bureau of Economic Analysis, National Income and Product Accounts; CEA calculations However, the act also shift some of this cost to the state which by critically analyzing the situation it will not reduce the country’s healthcare system in the long run. This act also reduces payments to doctors which will eventually result to reduced number of doctors, lower waiting time, or a situation in which people who pay cash received better care than those who depend upon the governments medical care system. Even in the event that the American Health Care system positively succeed in containing the national cost a planned, Medicaid and Medicare are project to consume a large amount of the federal revenue- approximately 40 percent in the next twenty years (Michael, 2012). Runaway cost of healthcare are the biggest threat to the medical care of the nation. It is the one government program that will certainly overwhelm the finances of the government in the future. It equally divert money from national investment that could generate economic growth and hurt the finances of most families. There are various method that can make the nations heath care program succeed one of which include accountable care Organisations that focuses on digitalized medical records, incentive for the clinical doctors and patients alike to pursue more cost effective medical care (Mosley, 2013). General and Health Care Price Inflation, 1960–2013 Source: Bureau of Economic Analysis, National Income and Product Accounts; CEA calculations. Housing and Education expenses Any strong economy in the globe today heavily relies upon a stable housing market, which anchors on the preponderance of the home loans being at a low risk (Michael, 2012). However, the state control of housing finances promotes lending that are risky to the government. Close to about half of the home loans recently guaranteed by the government agencies had a down payment of five percent or less. The government policy of trying to keep interest rates at low levels is driving the prices of houses up quite fast than the cost of rents and incomes. This therefore makes it difficult for a first time buyer to actually purchase a home thus creating another risk of a housing bubble (Newman, 2013). This is similar to the education system of the country, most of the education are managed and funded locally thus making it quite difficult for the federal government to make much of a difference. Yet most business leaders still insist that proper education should be the country’s top priority due to the fact that the American students are underperforming in comparison to their peers in other countries. The federal government still has much to do concerning its trade tactics. The most important trade agenda that the nation can begin with is the conclusion of the Tran-Pacific Partnership Agreement deal with the eleven trading nations in the pacific Asia. The imperative of this trade deal is both diplomatic and economic: this partnership is a key element of the national government and it forms the central core of wider architecture of the economy of the regional Asia. It is very vital for the federal government to seal this deal, failure to which it will have a large-scale negative consequences for the leadership of the United States of America to the Asian region. The Federal Government Policies and Strategies to Curb Economic Crisis The federal government has acted fairly vigorous in the attempt to prevent a more serious crisis and has effectively succeeded in the short run management of this national crisis however, the population still awaits to see how it will be in the long run. There are multiple policies that have been formulated by the federal government to curb this economic crisis. The most significant ones are: Tax rebates and cuts Second policy implemented by the government are tax rebates and cut for small and large business. The congress recently passed an “economic stimulus” bill of 168 dollars early this year that includes rebates on tax for household and tax cut for enterprises and business. At its best, tax rebates provide a one-time boost to the spending of consumers because these tax rebates could be spent only once. This therefore improve the purchasing power of the American population. The Obama administration are working on a second and much larger economic stimulus that will cost approximately about 850 dollars which will comprise of about two thirds of the increased spending which will aid the education system, public works, unemployment benefits and the state in general (Newman, 2013). Federal Reserve Policy The Federal Reserve policy initially adopted a very expansionary policy which involved pr. The traditional policy has however not been very effective because local banks have been very unwilling to lend money to households and business because of the loss of capital that they are likely to suffer and also due to the fact that they do not trust the creditworthiness of the borrowers (Mosley, 2013). Due to the failure of these traditional policy, the government improvised new policies. It broadened the collateral eligibility for its loans in which previously only the treasury bond were eligible for the loan but currently all types of loan security risk are eligible which include the even the mortgage based security thus increasing the ability of the American population to purchase homes through loans. Nationalize finance In the past when a financial crisis threatened the country, the government had only to options: to bail out financial capitalist or to incur the severe financial crisis which in the end would cause worse economic crisis in general (Newman, 2013). However the federal government have strived to make the country’s economy less dependent on these financial capitalist. It has managed this by ensuring that the government itself becomes the major credit provider in the economy especially for home loans, business loans and consumer loans. The Obama administration is striving to ensure that all finance should be nationalized and operated by the federal government the objective of the public policy. Conclusion In conclusion, it is vivid that American government is currently experiencing its worst economic challenges. One of the major problem facing the country’s economy is taxation. Over year the years most developed countries have lowered their corporate taxes leaving the United State of America to be among the developed countries that still has high rate of corporate taxation. Many multinational corporations of the United States of America pay no or very little taxation which starves the country. Similarly, housing and education are still among the major factors that are challenging the economy of the federal government of the United State of America. Most of the education are managed and funded locally thus making it quite difficult for the federal government to make much of a difference. However, the government has developed multiple strategies to curb these economic challenges. First there is the federal government reserve policy which increased loans to commercial banks and lower short-term interest rate policy with the intensions that these commercial banks will increase their lending to household and business. Second is the provision of tax rebates and rates to household and finally the government has nationalized finance. References Barfield C, 2014. Five Challenges Facing the American Economy. American Enterprise Institute. 4(3). Pp. 45-46. Newman R, 2013. Obama’s 4 Biggest Economic Challenges. U.S. News. viewed on 14th Dec 2014. http://www.usnews.com/news/blogs/rick-newman Chaufen A, 2014. The 4 Major Challenges The U.S Economy Faces in 2014. Forbes 5(2). PP36-37. Mosley F, 2013. The US Economic Crisis: Cause and Solutions. Publications. 3(1). Pp. 1- 14 Stephen D & Jeffrey E, 2014. Five Challenges Facing the American Economy. American Enterprise Institute. 8(3).Pp. 45-47. Michael S, 2012. The Six Daunting Financial Problems Facing America. TIME: Economy And Policy. 4 (2). Pp. 56-60. Read More