Ah, it’s a brand new year for all of us. And along with the new year, tax season has immediately come into effect. Oh the joy, nothing beats the disappointment of an income tax check. The whole year we work hard and pay our taxes, and during this special season, we receive 1/10 of what we gave. The sheer ecstatic excitement. This brings up my next topic of Tax Policy. So you and I can learn about the cringing numbers we look at when we get our pay stubs.
As all topics start-up, what is tax policy? Wordnetweb.princeton.edu/perl/webwn, states that tax policy is a program for setting taxes. Further research, from the US Dep. of Treasury, states that they review the rules and regulations from the Internal Revenue Code, Presidential Budgeting, Domestic and International tax policies, tax treaties, and fiscal policies.
Lets explore some issues of tax policy. To start of, so we can get a good look at government spending, we should start by paying our bills because spending helps with tax policy. This is best done when studying economics and accounting. There is a large size of government spending that is to be estimated. Evidence in tax changes, and how taxes impact the economy. David Recardo, a rich British economist, had the idea that the government has to pay their bills. His theory was that there was a price, “Natural Price”, to labor. Meaning that there is a price to labor; i.e. wages and salaries for a particular job.
The government deals with a budget strain of borrowing and lending. The spending is the burden of government, this is the largest issue that government faces. The government switches from low taxes to high taxes, tax shifting, they take money and they pay it to the deficit. So people or the private sector potentially pay for the deficit.
The timing of taxes does not affect consumer decisions just the size of government. Bush the first, changed the IRS tax tables in 1992, so people could have more money in their check, and in 1993 the people had to pay that money back. That was when the economy was weak. There was no bump in spending in 1992, and in 1993 they saved their money. Roughly 30% people saved money and 60-70% spend their money. This isn’t to say that there are impulsive and rational people. There are a few things that trigger this. Things like losing money, promotions, spending money, bonuses, a raise in wages/salaries, winning the lottery, these behaviors change the way we spend. The US has the lowest tax country, in Japan they are coming in close to low tax rates as the US. There are many tax systems such as Personal income tax, corporate income tax, and payroll income tax(social security, food stamps, disability, and etc.). Other countries have tax systems like sales tax and Value added tax (VAT). Back to the USA, a little less than half of revenue comes from personal income tax, 10% comes from corporate, and roughly 40% payroll tax.
Take home pay is a base for how people spend their money. Take home pay in general from tax change or bonuses, low earners respond more to this, high-end earners will not respond to this change in take home pay. There is usually a social multiplier effect, rather than the usual multiplier effect. The multiplier effect normally relates to travel and tourism, and basically means that your money is used and taken to create jobs, who then have spending power, and that money then continues to expand. The social multiplier effect normally takes different changes depending on the media. A perfect example is Facebook, Mark Zuckerberg went to the stock market and sold shares for very low prices, with the US currently still recovering from the recent 2007 recession, and huge media speculation of another possible recession and Facebook’s future created a huge negative impact and people didn’t buy. This dropped marks on the Social Media Giant. Media has a very large way of impacting how people spend their money. People are far more aware of saving and looking elsewhere to buy that pocketbook, video game, sneakers, food, and electronics.
In the US and Across rich and poor countries 2/3 income goes wages and salaries gross domestic product(products, incomes, and our expenditures; price of the product/service), 1/3 goes into capital rent, mortgages, and land. With the rise of many political battles, with unions and workers, they aren’t included with the way money is earned and spend. In the long run the revenue raised by the capital tax, which does raise money to pay the deficit. This deals with physical labor that is being replaced with machines, which leads to lower wages for workers. However there are issues such as depreciation value and how much money will be saved in the long run; ie. a machine to replace a human could cost $89,765, the employee’s wage is costing you $32,758 the year. Over the course of 5 years you would have spend $163,790 on that employee, saving you $74,025. This trend has become very apparent to todays society, and unions are fighting hard to stop this from happening.
Now we are here in 2013, where we avoided the dreaded fiscal cliff. Where everyone is giving President Obama a huge amount of grief. It’s well understood that he tried to avoid tax hikes on the middle class, but taxes are being still being raised another $2,000 to each middle income earner. People who earn more than $450,000 a year will be taxed, and so will couples who earn more than $400,000 a year. If you have a large inheritance you will be taxed as well. In turn people who are unemployed will be getting extensions on their unemployment benefits by another 6 months. It’s understood that all across the board people will be saving as much money as they can. Come this March there will be extensive debating and name calling back in Washington.
So do try and enjoy that “fat” tax check.
Thank you so much for reading. Next topic will be Marketing and how it works.
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