Tax Bailouts and the Conflict Theory - Essay Example

Tax Bailouts and the Conflict Theory A bailout as described by the economists is a situation in which the business or the government, or the individual offers some assistance mostly inform of money to a falling business so that they can prevent the devastating consequences, which may arise from the situation. The consequences are mostly a business downfall whereby the value of the companies share or the government bonds loose value. Most bailouts take the form of mortgages, stocks, or cash. However, some of these bailouts may require reimbursements. The culture of bailouts have traditionally occurred in the business sector mostly in large businesses such as industries and factories who produce goods in large quantities or large services businesses such as the insurance industry. The motive behind most bailouts is to contain the losses, which may occur due to the business lacking the usual funds to finance it. Mostly, such companies usually employ large numbers of people in a manner to believe that the economy would be able to sustain a huge jump into unemployment if the business is not funded (Roose web). Bailouts can take many forms such as bonds, stocks, and taxes. However, all of them have the same objective of financing the business investment, which is under the verge of collapsing. Tax bailouts affect all the people in the economy since it involves using the countries money. A major example of a tax bailout plan was the bailout that was given to the American international group during the financial crisis. The aim of this bailout was to allow the company not to pay the tax for a certain fiscal period in order to allow the company to get back into profitable means and to reduce the losses. Members of the now-obsolete Congressional Oversight Panel for the Troubled Asset Relief Program gave a statement decrying AIG getting a tax exemption in 2008. However, their demands were not met since the US department of treasury went ahead and issued the tax bailout. Other large companies, which benefited from these large bailouts from the federal government, were the Citi Group, and General Motors (Foldvary web). The tax bailouts from these companies directly affect the population in that the companies create employment for a large number of people, not only in America, but also in the rest of the world. The tax bailouts allowed these large corporations to have some money to retain the employees of these companies. Were it not for the tax benefits from the government, the country could have seen a large number of people lose their jobs if the companies opted to lay off some workers to cut their losses. Consequently, unemployment brings some devastating effects into the economy (Roose web). One of them is that the employment level is directly related to the value of the currency. An increase in unemployment leads to the loss of the value of the currency. This in turn means that the value of the shares for other companies would reduce thus people would loose on their investments. In addition, the value of the currency would reduce against other currencies in the world. Consequently, the value of exports for the country would reduce drastically thus some exporting companies would run at losses. These exporting companies would in turn look for new ways to reduce the losses that they make, one of them being reducing the number of workers, therefore contributing to more unemployment in the economy. This would form a vicious cycle of unemployment and investments whereby the actions of one sector of the economy would lead to a devastating effect to the other (Roose web). Moreover, unemployment would lead to loss of the value of the currency thus leading to a decreased demand for the currency. This means that the currency would depreciate thus more of the country’s currency would be required to buy a goods from other countries, importing. However, the tax bailouts given to AIG were against the interests of the public since they broke the transfer’s policies, whereby the benefits were more to the company’s shareholders and inflated the executives’ pay at the public’s expense (Holm web). Conversely, tax bailouts have a high advantage to the company, the company’s shareholders, the interested investors, and the country at large. One of the main advantages of tax bailout is that it reinstates the country back to the position it was before the losses began. This happens in that the company is exempted from paying taxes, thus meaning that the company will have more income. An increase in the income of the company will mean that the company will result to creating more employment opportunities for the people in the country as well as outside the country (Holm web). Consequently, more money will flow in the economy thus increasing the consumer and investor confidence in the economy. An increase in the level of the confidence in the investment sector of the country will mean that the value of the currency will increase since more investors will require the country’s currency in order to invest. Therefore, in the Forex market, the country’s currency will increase in value therefore more of other countries currency will be required to buy the country’s currency. This in turn will increase the employment levels of the country. The effects of the increased confidence by the investors and the employment levels will in turn form a vicious cycle of employment and investments that will have good effects to compatriots and citizens (Foldvary web). By bailing out the large companies in America, the country was accused of engaging in some socialistic policies. An example can be seen when the then senator Barack Obama was asked about his tax plans and replied that he opts for the tax policy to be spread. The resulting conflicts were more of a social nature and lead us to the conflicts theory that was developed by Karl Marx in the early 19th century. The conflicts theory are viewpoints in social science which highlight the communal, political or quantifiable disparity of a social group, which analysis the comprehensive socio-political structure, or which else diminish from fundamental-functionalism and philosophical obscurantism. This theory invites much attention to the differential in power. For instance, the class conflict, and commonly diverges from historically prevailing philosophies (Bartos and Wehr 5). This theory is also based on the based upon the viewpoint that the basic causes of the crime as a social disorder are the economic forces that operate within an economy. It also portrays the economy as based on the criminal justice system and criminal law are understood to be functioning on behalf of rich and influential communal elites, with subsequent strategies intended at regulating the poor. It also portrays the criminal justice system as one that aims at enacting values of morality and decent conduct formed by the influential on the entire society. Emphasis is on unraveling the influential from have-nots who would rip-off from others and defended themselves from corporeal attacks. This shows that the laws were formed for the rich and influential and not the have-nots (Miller et al 5). In relation to the tax bailouts, the majority of the American citizens everywhere opposed this policy since it only bailed out a few large companies such as that American International Group, the CITI Group, and the General Motors, living out other medium sized companies, which in turn would shape the country’s economic policies. The people who stood to benefit from these policies were largely the shareholders, the executives who received large awards, and the employees of those companies. Meanwhile, the employees from other smaller companies continued to suffer because of the unemployment created by the biting recession. This motive is similar to that quoted by the Karl Marx conflict theory whereby the bourgeois shaped and controlled the proletariats. It is also a depiction of inequality and injustice in the country’s economic and judicial system (Bartos and Wehr 5). Works Cited Bartos, Otomar and Wehr, Paul. Using Conflict Theory, London: Cambridge University Press. 2002, Print.  Foldvary, Fred. “Who benefits from bailouts? Billions for House Builders,” The Progress Report, 2008.Web 11 May 2012. < http://www.progress.org/2008/fold554.htm> Holm, Erik. “UPDATE: AIG Tax Benefit Is Stealth Bailout –Warren,” The Wall Street Journal, 2012. Web 11 May 2012. Miller, Frederic et al, Conflict Theory, London: Alphascript Publishing, 2010, Print. Roose, Kevin. “Bailout Watchdogs Criticize A.I.G. Tax Breaks,” The New York Times, 2012. Web 11 May 2012. < http://dealbook.nytimes.com/2012/03/12/bailout-watchdogs-criticize-a-i-g-tax-breaks/ > Read More