Micro Economics: Individual Project - Essay Example

When the market economy fails, it becomes inefficient and the “invisible hand” losses its control to the market. This calls for the government to intervene as market inefficiencies compel the government to supplement and modify its operation. The economic activities of the government affect our wellbeing every day of our life. From the early years of our life, if we played at the playground, attended public schools, got sick and visited public hospital up to the first day we received our pay check, we can see how the government works on taxes.

Playgrounds, public schools and public hospitals are built and subsidized by the taxpayers and once you work, there will be significant deductions from your income to pay for these public goods. Public goods also include social security insurances and healthcare benefits like Medicaid and Medicare. The latter is considered a public good because it is provided by the government as it yields substantial benefits to the society and exclusion principle is not applicable to it. This means provision of healthcare benefits is made available to all individuals and there is no way to exclude certain group of individuals from getting or availing the benefit.

What has changed about this was when a reform in healthcare was made and this reform in healthcare is being linked to the problem on budget deficit and the free rider problem. On September 20, 2011, Carol Lee and Naftali Bendavid posted an article entitled “Obama Yokes Benefit Cuts to New Taxes” on wsj.com. “President Barack Obama threatened Monday to veto any bill that cuts Medicare benefits without increasing taxes on corporations or the wealthy, setting his sharpest boundaries yet in negotiations over reducing the federal deficit” (Lee & Bendavid, 2011).

When the reform in healthcare through the Medicare Part D, which was the provision of free pills for seniors, was enacted, the Congress had to abandon its 1990s rule that any bill for new spending had to provide new tax revenue to pay for it. This reform bill violated the principle of “fiscal neutrality” (Phelps, 2011). When Pres. Obama proposed the 2010 Medicare legislation, he threatened an additional outlays without any clear plan on how to increase tax revenues to affect them. Mary Meeker at the financial firm KPCB made an estimate earlier this year that the current value of US existing entitlementas has already reached $66 trillion of which $35 trillion is for Medicaid, $23 trillion for Medicare and the remaining $8 trillion is for Social Security.

Democrats can agree to cancel the free ride of the middle class as the Republicans can end the free ride of the working class. Both parties can agree to implementation of a new value- added tax. I think the best solution to close the budget deficit without hurting any individual in the society is for the government to boost the revenue. The government should work on programs that will provide more job opportunities for its people. This could be done by encouraging more investors to do business in the country.

This will not only reduce the government spending on provisions of public goods but may also increase the tax revenues from the corporations in the long run. This issue only implies that public spending is financed through taxes. Government make revenues from imposing different form of taxes to pay for its spending such as provision of public goods. But this does not mean that for every spending that the government will make, it has to impose a certain form of tax to compensate for it. There are possible solutions which will not bring harm to any one.

Bibliography Lee, C., & Bendavid, N. (2011, September 20). Obama Yokes Benefits to Cut New Taxes. Retrieved December 2, 2011, from wsj.com: http://online.wsj.com/article/SB10001424053111904106704576580601496630760.html?KEYWORDS=MEDICARE+HEALTH+REFORM+IN+US Phelps, E. (2011, August 22 & 29). The Monumental Fiscal Challenge. Newsweek, 30-31.