Are Tax Cuts Good for America - Essay Example

Every established government recurs to the tax collection process, for different purposes. Throughout time, these purposes have changed and/or evolved, depending upon de size of the nation and/or the direction it is taking. The government will always try to justify the tax collection process with several types of benefits to the society or its population in general on in individual basis. At one point or another, the question whether or not this process is necessary as it is or its size needs to be reduced, in other words, is there a need of a tax cut?, and what are their benefits, if any? For many years, the current tax collection programs have been very successful, as where the national budget has presented surplus instead of deficit. In order to obtain a better understanding, it is recommended to begin an analysis where the basic concepts regarding taxes are stated. According to Wikipedia “tax is a financial charge or other levy imposed on an individual or a legal entity, by a state.” (Tax, Wikipedia.org) In the case of the United States, the state is represented by the government, either federal and/or local. Nowadays, the taxation is paid in money; however, there have been cases where it is paid with labor. Taxation is not a donation, nor a voluntary payment, it is rather an imposed one or, better yet, an enforced contribution, where agencies such as Internal Revenue Services are in charge of collecting them. When taxes are not paid, either fully or partially civil and even criminal penalties are imposed upon the non paying individual or entities. In many situations the Internal Revenue Services has permitted the payer to initiate a payment program, without further penalties. (Tax, Wikipedia.org) The purpose of collecting taxes varies from state to state and even from city to city. In any case the government is allowed to use them, either for war, protection of property, law enforcement, etc. and most important of all, the operation of the government itself. In the United States, the government also uses the funds collected during the taxation process, for welfare and public services. Those services may include unemployment benefits, education systems, health care systems, pensions, and even public transportation. There exist more programs created to assist the citizens and the people with lower incomes. As it has been mentioned before, the different programs vary from one state to the other, or they are held constants, depending on the program, throughout the nation. (Tax, Wikipedia.org) A proof that the systems are not even from state to state and the federal government does not act evenly throughout the nation, is the national disaster caused the by Hurricane Katrina in New Orleans. Up to this date there are homes that have not been rebuilt yet and the affected people are still not being able to have access to a house. The taxes and tax rates may vary depending on the state and the distribution established upon the society. Here is where the different purposes of taxes begin to play a role. In earlier times, the nobility was supported by imposing taxes on the poor. In today’s system, taxes are intended to support the people with zero or minimum income, elderly, disabled. And the taxes are applied to the working class and based upon the salaries the percentage increases or decreases. Also the government can impose some taxes on transactions to make the more appealing or less attractive, depending on the government interest. There are taxes on goods entering the country, which might be elevated in order to discourage international competition and to protect the local industries. Again, the main purpose of taxation is to raise money, once the funds have been obtained, the next step is to redistribute them. This process implies the act of transferring wealth from more affluent sections to less fortunate ones. (Tax, Wikipedia.org) The tax collection process has always been difficult, during the early American history, taxes imposed by the Mexican government, developed a war which as a consequence, permitted the state of Texas to become part of the United States. In a different situation, the tax At this point the question whether or not is beneficial to cut taxes might lead us into the next questions. Which taxes are the ones to be reduced? And by How much? In order to have a better understanding, let us continue with the different types of taxes being collected. The law establishes the collection procedure. A large portion of the taxes is obtained from corporate taxes and some smaller portion is obtained from payrolls. The taxes from payrolls could be progressive, regressive and/or proportional. These taxes may vary from country to country; nevertheless, the constant controversies and complaints are similar throughout the earth. Additionally, within the United States the decision of who ends up paying the taxes, is determined by the marketplace, since they are inserted into the production costs. That is, the elasticity of demand and supply determines if the seller or the buyer will absorb the taxes. From the previous statements, the taxes on corporations can be either increased or decreased based upon de government’s criteria. The same situation is repeated for taxes on payrolls or individual taxation. If one of the government policies is to reduce taxes directly, then these two sectors are the first ones to be affected. On the other hand, the elasticity for the supply and demand are affected by many different factors, even international markets and industries, it can only be regulated indirectly through laws. (Tax, Wikipedia.org) Today, a very large demand on construction materials throughout the world has force the price of steel bars and steel in general to more than double its price. The world’s economic situation has forced the price of food to reach much higher levels than expected, in some places rice will be scarce. Also the price of oil has increased, therefore the price for gas within the United States is forcing to lower the price of new vehicles, especially SUV ones. Additionally, the real state collapse has forced the government to provide help to families of lower incomes. Another aspect related to taxation and the government, is that usually the government collects more money than it is required and the government makes the decision on how the funds are allocated. Therefore, if the tax rate or tax amount to be collected is reduced, in order to produce benefits to the society, this might not be the case since government spending could unbalance the process and create a deficit. Therefore, the tax cut enforced could become a short term decision since the deficit must be attended to. Both, a tax cut and/or a tax increase are decisions that need to be taken after a serious study on the market, international and local, the current economic structure and several other factors. The benefits and/or disadvantages cannot be perceived immediately, some periods of time need to pass by before the changes arise and affect the current economic system. (Tax, Wikipedia.org) According to an article written by Isaac Shapiro and Joel Friedman, President George Bush’s top economic policy initiative has been a tax cut. Throughout his terms in office, President Bush, has always move towards a tax cut, regardless of the change of pace of the country’s economic system. An early analysis on tax - cuts have shown a negative effect on the economy. These tax cuts have contributed in the reduction of revenues in the year 2004. Moreover, the projected surplus on the budget has changed to a projected deficit within a record time. The tax cuts have benefited the higher income individuals, than to the lesser income people, and the economic stimulus has diminished. President Bush has established enough policies to cut taxes during 2001 and 2003. The cut on taxes has benefited mostly the higher income individuals and the forecast of these reductions may originate trouble to the economy since the baby boomers are reaching the retirement age. Over the next ten years the total tax – cut costs will be approximately $3,9 trillion and will certainly create a deficit in the budget of the country. Further on generations would have to work harder and even change some policies, that is, increase taxes and modify some bills passed by the Bush Administration. (Isaac Saphiro and Joel Friedman, TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes) According to the author, Mr. Shapiro, the cost of the tax cut is very elevated and accounts for more than half of the 2004 deficit. These calculations do not take into account the economic effects of the tax cut process. In the short run these economic effects could be positive, but in the long run, the positive effects have a tendency on becoming negative ones. During this time, the Bush Administration has increased the budget on some programs, such as the military expenditure, homeland security, and education spending. The tax cut cost represents eighteen times more than the increases already mentioned. On the other hand, the domestic expenditure is being observed to be reduced by the President and by the congress. The author presents more analysis where the tax cut costs increase dramatically over the period of ten years, since these policies are intended to become permanent by the Bus Administration. (Isaac Saphiro and Joel Friedman, TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes) Additionally, Mr. Shapiro and Mr. Friedman present the distribution of the benefits resulting from the tax cut process. About one fifth of the households, ranging in the middle of the spectrum will benefit from an average tax cut of $647. On the other hand the top one percent will benefit from about $35,000 in tax cut. Additionally the households whose income is above $1 million will benefit from about $123,000 in tax cut. Even more, about twenty percent of the households will receive about nine percent of the tax cuts, and the millionaires of the country, amounting to 0.2 percent of the households, will receive about fifteen percent of the tax cuts. As the authors have been able to prove, the uneven distribution of the benefits will have a tendency to increase even more, becoming more uneven, due to the fact that the laws will benefit more the higher income households than the middle income households over time. The cost is significant to the country’s budget, and the benefits will hardly be perceived by the average income families. (Isaac Saphiro and Joel Friedman, TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes) Moreover, the Bush administration has proven to be hesitant into helping lower income families, these policies have been widely criticized and the administration has been forced to modify and provide greater support to low income families with children, as is the case or example presented by the President of a waitress with children and having an income of $25,000 a year. Initially, this waitress would have had no benefit from the tax cut; however, after the harsh criticism, the Bush Administration and congress modified the child tax credit proposal and benefited the low income families. Two years later, and continuing with his current policy, President Bush proposed to accelerate the tax cut programs to higher income households and did not include the child tax credit proposal mentioned earlier. Once again this procedure has been highly criticized and the responses from the Bush Administration have not been satisfying to the public. In fact, throughout his campaigns and speeches, President Bush has always mentioned the benefits that middle class households will receive from these tax cut processes. However, as specialists perform the necessary analysis, the real results show that President Bush’s speeches are misleading and not entirely accurate. The data that he provides cannot be confirmed and instead the beneficiaries that he mentions are in fact other population sector, more reduced in number and with a lot higher incomes. (Isaac Saphiro and Joel Friedman, TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes) The other sector that is being affected by the tax cut proposals is the employment sector. According to the Bush Administration, with the tax cuts employment would boost. However, by the year 2003 the employment rate had actually gone down and has not been able to recover. The Bush administration has predicted the creation of 5.5 million jobs in a period of eighteen months. During the first nine months about thirteen percent of those 5.5 million jobs had been created. Furthermore, the Bush Administration has managed to present several data and projections that do not necessarily represent the economic situation, at the time, of the country. For example, the Bush Administration proudly demonstrates a low unemployment rate, not taken into consideration that the rate does not only represent the number of actual unemployed population, but might represent the number of people not searching for a job. The authors conclude their analysis by suggesting the Bush Administration to reconsider its tax cut programs. The Bush Administration strongly disagrees and continues with its extended proposals to make the tax cut programs permanent with the same distribution. (Isaac Saphiro and Joel Friedman, TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes) The previous paragraphs only show how the policies stated by the Bush Administration are not effective and present very little benefit to most of the population in the country. However, in general tax cut proposals are not necessarily negative. The tax cut programs could be done in different manner or using a different distribution, as to make the process even and fair for the entire population. It is very difficult to satisfy every single citizen and it needs to be taken into account the fact that a large portion of the population is reaching the retirement age and for that matter the budget should show a surplus rather than a deficit. Since tax payments are imposed and enforced by the laws, the sweet sound of tax reduction or cut can make the difference on the support towards a political leader. Therefore, politicians as Mr. Bush, can still present appealing tax cut programs, without harming the entire economy and the future of a stable economy. And in a very honest manner, for those fortunate whose income are very large, the taxes should be greater and not less. Even more, there has been a wide controversy regarding the faults of the current social security system and its inevitable collapse. This situation has been flagged many times, and unfortunately the Bush administration has presented little or no attention to the matter. On the contrary, as we have seen in previous paragraphs, the national budges presents a large deficit due to the tax cut programs. During a recession period, the government would present options for tax cuts in order to stimulate the economy. This process is done by different options, being one of the selling more bonds to individual citizens, or international entities. This is done, in order to make up for the shortfall created by the tax cut program. This statement cannot be applied to the policies presented by the Bush Administration. In short, the government should continue to draw money from private sectors, only the methods are different. There are two different positions upon the views of how the tax cut distribution should be. The conservative party strongly believes that the burden of taxes should not fall on their shoulders for a majority. On the other hand, the liberal party believes that during a recession period, it is necessary to provide more money to the middle income households, in order to promote consumption. However, if the available money is distributed amongst the wealthiest, the tendency would be to buy bonds and invest more, thus maintaining the consumption rate very low. (Tax cuts, Moneychimp.com) The previous paragraph is a more neutral position on how the tax cut procedures should be, the steps required to maintain a stable economy, and steps required to maintain the budget in surplus rather than deficit. Also, as the definition of the tax purposes have been stated, it is important to remember how the government of the United States of American, is currently distributing its resources. Due to the September 11, incident in the year 2001, the Bush Administration has passed several bills, allowing the government to invest more money in anti-terrorism efforts. That is more funds fore security programs, investigation programs and terrorist persecution programs. On the other hand, President Bush had convinced the congress to enter a war in Iraq, where up to this date, the U.S. army has not been able to control the situation and maintain peace within the country. This war has been very costly for the country and with the current tax cut programs instated by the Bush Administration, the budget has a large deficit and most of the resources are allocated for the war. Many Americans feel that the war in Iraq is unnecessary, and that the U.S. army troops should evacuate the soil and permit the local citizens to reestablish a government and allow a democratic process to be reinstated. On the other hand, there are situations where a rebel group in a foreign country represents a constant threat to the U.S. government and to some neighboring countries, and the government does participate in an action to establish a peaceful situation. That is the case of the Colombian guerrilla group FARC, which about six years ago has kidnapped three American citizens, and recently they have been found in possession of radioactive materials with the purpose of building an atomic bomb. For similar hypothesis, the U.S. government has invaded Iraq. There is also resentment towards the govenment on how the natural disaster of Hurricane Katrina was handled, leaving innocent American citizens without help and support, in some cases up to this date. The resources distribution should be even and fair and the policies should be applied regardless of the country and /or location for the benefit and good of the American society. The Bush Administration has been widely criticized, especially since its policies in many aspects are completely opposite to the ones presented by an earlier leader and former U.S. President, Mr. William Clinton. President Clinton, left the office with a country enjoying a stable economy, there was surplus on the budget and a wide acceptation of the population. On the other hand, President Bush is about to leave the office with a large deficit in the budget, a costly war in Iraq, some strong criticism on national policies, the value of the dollar bill in constant decadence and with large benefits to his friends, the small percentage of the population with large incomes. From the previous analysis, it can confirmed that tax cuts are good for the nation during a recession period, as long as it stimulates the economy and the national budget is not reduced. The government has the power to apply more taxes on some items, or reduce items in some others, depending upon the desire to increase economic movement or consumption or to reduce such activity. Saphiro, I. and Friedman, J. TAX RETURNS A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes. April 23, 2004. Cbpp.org. May 22, 2008. Tax. Wikipedia, the free encyclopedia. May 30, 2008. Wikimedia Foundation, Inc. May 31, 2008. Tax cuts. Moneychimp.com. May 22, 2008. Read More