Paid Government Programs and Voluntary Contributions - Essay Example

What would happen if we eliminated taxes and paid government programs with voluntary contributions instead? The sole purpose why tax is enforceable and compulsory is that tax is the sole lifeline of government machineries (Maps of India). The government, no matter what time of regime, in whatever type of ideology, and whatever structure it has, needs taxes to fund its operations and to provide the people with the basic social services the people needs for survival, in the case of communist and socialist states, and to safeguard the rights and privileges of the citizens, as in the case of republics. Without the mandatory contribution of taxes, and should the government solely generate funds based on voluntary contributions, government revenue will be highly unstable and unpredictable, which could pose a problem on the continuous operations of government agencies and their projects. 2. Explain the difference between a private good and a public good. Why has there been an increase in the number of public goods "produced" by governments? Public Goods are goods that are non-rival and non-excludable, quite the opposite of Private Goods (Experimental Economics Center). Public goods, being non-rival, means that the marginal utility used-up by one consumer does not limit the marginal utility that another consumer will use. Private goods, on the other hand, are rival goods, which mean that if there are a total of 10 pencils in the market and Consumer A utilizes 4 of those pencils, then the marginal utility enjoyed by Consumer B is decreased to only 6 pencils. Public goods are non-excludable; which basically means that one consumer does not block other consumers from using up the public good. This differs from private goods in that should consumers use up the supply of private goods, other consumers are excluded from enjoying the private good. In Economics, one of the causes of Market Failure is public good and the tendency of the consumers to free-ride. Since public goods are non-excludable, entrepreneurs could not place a consumption fee or a price for the enjoyment of the public good, which ultimately leads to them not producing the public good (Cowen). Due to the valued need of the production of such a public good and without entrepreneurs willing to produce such a good, it is up to the government now, who earns revenue not through selling their products by through taxes, to produce the public good, thus the emergence of an increase of government projects on public goods. 3. Explain why the free-rider problem occurs for public goods but not for private goods. Due to the non-excludability of the utilization of public goods, just about anyone can enjoy the public good (Cowen). While private goods limit their consumers through the imposition of prices, public goods could not do as such because of the spill-over effect it has to other consumers. If people could enjoy the same utilization of the public good as other people with no price indicated, then they would gladly free-ride on the public good while others have paid for it or while the entrepreneur has already produced the public good. Private goods do not have any free-rider problem due to the excludability of the private good; if a consumer would like to consume such a public good, there is a corresponding price that the consumer has to pay before the utilization of the good. 4. Why is the "optimal quantity of pollution" (the amount of pollution generated in any economic activity) never zero? Pollutions is always a by-product of production; should the society aim for zero optimal quantity of pollution, then economic activity would stop and there will be no goods in the market (Carlton & Perloff). The optimal quantity of pollution for a society is not zero, but rather the point where the benefit the society received by producing the last unit of a certain good (benefit from the last unit of pollution produced) is the same as the cost of producing that same good, where the Marginal Benefit of Pollution is at the same point of the Marginal Cost of Pollution. This allows economic activity to push-through at maximum level without placing a detrimental compromise on the environment. 5. In the rest of the world, the tax on gasoline is considerably higher than in the United States, and gas consumption is considerably lower. Why doesn't the United States increase the gas tax? The United States is highly dependent on gas for private transportation. Compared to other OECD (Organization for Economic Cooperation and Development), the United States lacks in public transportation options (Komanoff, 2009). People result to driving due to such absence of public transportation options. In the year 2000, US Census counted 281 million Americans (U.S. Census Bureau), 191 million of which have a driver’s license (Office of Highway Policy Information, 2011). Increasing tax on gases and petroleum would make approximately 191 million Americans suffer. They could not forego with their cars as there is no other effective means of transportation from their houses to their workstations. Furthermore, politicians would not push forth with increase in gas tax as this would make unpopular with the motorists, which consists of a large portion of the population. 6. How does a pollution tax cause consumers to help reduce pollution? Pollution taxes are levied to producers who produce a certain kind of product, whether intentionally or a by-product of their goods, harmful to the environment. Often, these pollution taxes are levied on every unit of environmentally harmful products produced. When levied to the producers, it now adds-up to the price of the goods that is being sold at the market, making the goods more expensive, thus less competitive. Consumers, being the driving force of suppliers, would divert to other goods of the same kind, only cheaper. If such producers do not invest in Research and Development and adapt means to alter their products or of the production of such, then ultimately, the demand for such products will drop and the firm will lose against its competitors. 7. Do you believe the Government should set price controls over gasoline as its price rises toward three dollars per gallon? What might be the impacts of such a policy? Oil Price Regulations would inevitably be a loss to company owners and oil suppliers. The price of oil is continually increasing brought about by dwindling global supply from the OPEC. Oil Suppliers buy these oils from OPEC Petroleum Cartels, at the global price, and supposedly sell those oils in the United States, still, at a higher price. However, should price controls on oil exists, oil suppliers are compelled to sell their oils to the people at a lower rate, maybe even lower than how they bought it from the producers. Ultimately, brought about by the continued losses procured by the price controls, one by one, the oil suppliers will be bankrupt and their firms closed. Putting oil price controls would be highly detrimental to the market supply of oil in the US. 8. Contributions to organizations like United Way and the American Cancer Society are tax-deductible: For each dollar contributed, a person's tax liability decreases by $0.15 to $0.31. Explain the rationale for this tax policy It is the government’s job, at least on the lenses of adherents to democracy, to safeguard the basic rights of every individual in the country, which includes the basic right to social services and social security. Charitable institutions are the non-government counterpart of the society that supports the government on such endeavor. Since charitable institutions exists, helping those that needed help, the government now tries to promote such responsible actions and implement policies that encourage people to support those charitable institutions (Marketing Titan). Tax deduction is one of the means that the government encourages individuals to support those charitable institutions. Tax deduction on charities and donations are motivated by the policies of the government. 9. Complete the statement with "low" or "high": Under a system of marketable pollution permits, a firm with ______ abatement costs will buy permits from a firm with _______ abatement costs. Under a system of marketable pollution permits, a firm with high abatement costs will buy permits from a firm with low abatement costs. Bibliography Carlton, Dennis and Jeffrey Perloff. Pollution. 19 April 2011 . Cowen, Tyler. Public Goods: The Concise Encyclopedia of Economics. 19 April 2011 . Experimental Economics Center. Private Goods vs. Public Goods. 19 April 2011 . Hargrieves, Steve. U.S. gas: So cheap it hurts. 15 July 2008. 19 April 2011 . Investopedia. Abatement Costs Definition. 19 April 2011 . Johnson, Paul. Public Goods. 19 April 2011 . Komanoff, Charles. Pollution Taxes Work. 28 April 2009. 19 April 2011 . Maps of India. Purpose of Taxation. 19 April 2011 . Marketing Titan. Gift Donations and Tax Reductions. 19 April 2011 . Merchant, Bryan. Is The United States Ready For A Higher Gas Tax. 26 August 2009. 19 April 2011 . Office of Highway Policy Information. Licensed Drivers. 4 April 2011. 19 April 2011 . Rate Empire.com. Purpose and Effects of Taxation. 19 April 2011 . Tutor2U. Economics of Taxation. 19 April 2011 . U.S. Census Bureau. Census 2000 Gateway. 19 April 2011 . U.S. Energy Information Administration. Oil: Crude and Petrolium Products. 28 October 2010. 19 April 2011 . Read More