An Analysis of the Effects of Marginal Tax Cuts

In: Social Issues

Submitted By smitra16
Words 1543
Pages 7
In my last paper, I argued in favor of the across-the-board tax-cuts proposed by the Republican presidential candidate Mitt Romney. With the help of instances from both micro as well as macroeconomics, I showed how a reduction in marginal and corporate taxes was beneficial for the economy. I used the growth in Gross Domestic Product (GDP) as a measure of the positive direction which the economy would take as a result of tax-cuts. I used empirical evidence to show that the tax-cuts on previous occasions have resulted in economic growth and increase in GDP of the United States. My detailed arguments and results can be found in the Appendix. In this paper I will analyze the effects of marginal tax-cuts on the different income groups, the high income and low income households. I will also analyze the variations in marginal propensity to save taking account demographic characteristics such as age group and education level as well as income. This would aid in an analysis of which portions of the population would be benefitted from a tax-cut. Therefore, I would like to would policy prescriptions for cutting taxes.
When there is a reduction in payroll tax rates, it can have different effects on the different parts of the population. For low-income households, a tax-cut would encourage them to work for more hours. On the other hand, for high-income households, it may lead to them working lesser. These can be explained by the backward-bending supply curve for labor.
A low-income individual’s disposable income increases when the tax rate is reduced. This causes the disposable wage rate to go up as well. Thus, he gets to keep more than he previously could from working for an hour. Therefore, he wants to substitute his leisure time for labor. So he puts in more hours of labor. A high-income individual’s…...

Similar Documents

Cango Marginal Analysis

...Marginal Analysis CanGo wants to branch out and focus sales on other products other than books. They are taking on a lot of financial responsibilities that may not be worthwhile for the company. CanGo wants to make the online gaming venture successful and wants to venture into different types of online sales. Recommendation: #1. CanGo is in need of a marginal analysis. A marginal analysis would include economic view of how the company would spend its dollar. The analysis would also be able to show the company whether the money is being spent necessarily. It will also let CanGo know whether they are able to take on new business ventures. The marginal analysis will assist CanGo with analytical decision making. #2. By doing a marginal analysis this will help CanGo decide whether employee shifting would be feasible or whether they should hire new staff. Even though the company would not be able to determine the exact outcome of the decision, the analysis will give them a rough idea of what to expect. Cost Benefit Analysis CanGo has not currently had a cost benefit analysis done on the company. With a cost benefit analysis, it gives the company an analysis of a business decision that they are proposing. This will give them an idea on whether the company is financially stable to take on a new project or venture. The cost benefit analysis would include all costs associated with the new venture including warehousing fees and price that the product will be sold for. This is...

Words: 434 - Pages: 2

Marginal Productivity Analysis

...Marginal Productivity Analysis Kenneth Machol ECO 265 January 28, 2013 Christopher Rakovalis Marginal Productivity Analysis MARGINAL PRODUCTIVITY THEORY: A presumption used to study the profit-maximizing amount of inputs (so as to is, the services of feature of productions) obtained through a company into the assembly of amount produced. Marginal-productivity presumption indicates to the command used for a feature of manufacture is based on the marginal result of the issue. In meticulous, a company is usually eager to shell out an elevated cost intended for the input that is extra dynamic and gives extra to productivity. The command for an input is therefore preeminent termed a consequential command. Marginal productivity assumption is a foundation inside the study of feature markets and the input side of short-run creation. It sheds insight into the order for factors of construction based on the vision that a profit-maximizing business hires inputs based on a judgment connecting the productivity of the input and the price of the input. The rule of Diminishing Marginal proceeds a vital code fundamental marginal-productivity presumption is the rule of diminishing marginal takings. This rule says that as added units of a variable input are extra to a set input, ultimately the marginal result of the variable input decreases. This code is a vital part of short-run assembly study, which offers insight into the positively-sloped marginal price......

Words: 1177 - Pages: 5

The Effect of Value Added Tax on Economic Growth in Nigeria

...Background of the Study Tax is an instrument to regulate economic growth and development across every economy. As a result, governments across the world impose one form of tax or the other. The main purpose of imposing tax has been for the government concerned to use the proceeds of the taxation to run the government and to provide essential services. Before a country considers efficient and effective way of administering tax system; it must possess a clear picture of the scope of its tax system as well as considering the tax rate and tax base over time. The quantity and quality of revenue required by tax administrators are to a large extent determined by the type of tax system which is introduced. A nation’s tax goals are not achieved by designing a tax system which is fair, any fair system which is not administered as planned becomes inequitable. Thus, a good tax system is capable of financing the necessary level of public spending in the most efficient and equitable way possible. It should also (1) raise enough revenue to finance essential expenditures without recourses to excessive public sector borrowing, (2) raise the revenue in ways that are equitable; that minimized its disincentive effects on economic activities, (3) do so in ways that do not deviate substantially from international norms. (Tanzi and Zee,2000). It is being noted that the aims and objectives of taxation differ from one country to the other. However, an essential common feature of tax has been the......

Words: 11591 - Pages: 47

Effect of Tax

...crimes, evasion of legal duties etc iii. It is registrable and has not been registered. USUAL ARTICLES IN A PARTNERSHIP AGREEMENT A partnership agreement usually contains the agreed terms for the management od the business by the partners. The following are the major provisions in a partnership agreement. a. Full names of parties b. The business address c. The business name d. The business object or native e. Commencement and duration of business f. Capital and contribution ratio by partner g. Acquisition and treatment of partnership property h. Management of business, limits of authority, meeting etc i. Introduction of new partners j. Bankers and signatories to the account k. Remuneration for partners acting in the partnership business l. Tax reserve/appointment of auditors m. Dispute resolution n. Resignation, expulsion, vacation, notice required o. Termination of partner ADVANTAGES OF PARTNERSHIP 1. Large Resources: A partnership is in a position to accumulate large resources as more than one contributes capital. The added financial strength of the partners can be utilized to increase the scale of operation of the business. New partners can be admitted to meet the additional requirement of fund. 2. Diverse skills and expertise: Partnership provides a scope for association of persons with diverse skills and expertise. Partners having expertise and skills in different functional areas of business can manage the business efficiently. 3. Easy Formation: The formation of......

Words: 2060 - Pages: 9

Boston Transplant Marginal Analysis

...1. What is the marginal cost estimate of the Phase 4 hospital services, assuming that 60 percent of the designated costs are fixed and the remaining costs are variable? 2. Create the relevant underlying cost structure (cost behavior) equation. What is the relevant range for this structure? How does the structure change if the contract is expected to bring more than 30 additional transplant patients? 3. What fixed cost proportion is implied if the price for Phase 4 hospital services is set at $90,000? 4. Now assume that the fixed cost proportion is only 50 percent. What price must be set to cover variable costs? What if the fixed cost proportion is 70 percent? 5. How does the result change if the contract requires new fixed costs in addition to variable costs? Assume, regardless of incremental volume, that fixed costs increase by 10 percent if the contract is undertaken. Now assume 20 percent. What fixed cost increase is implied if the price for Phase 4 hospital services is set at $90,000? 6. What role do the following factors play in the decision as to whether to use marginal cost pricing on the new contract? a. Reimbursement amounts paid by current transplant third-party payers b. The amount of excess capacity in the transplant unit 7. What is your final recommendation regarding the base rate for Phase 4 hospital services that should be built into the contract? When answering this question, be sure to consider (1) a longterm pricing strategy and (2) the impact of...

Words: 309 - Pages: 2

Marginal Analysis

...Marginal Analysis In economics, there are three important terms, marginal revenue (MR), marginal cost (MC) and profit (P). Marginal revenue is defined as a change in total revenue that comes from selling one more unit of output. However, when applied to a pure monopoly, marginal revenue is less than the price of all levels of output except the first level. Marginal cost is the additional cost of making one more unit of output. It can be determined by noting the change in total cost which the unit’s production entails. Profit can be divided into two separate terms, normal profit and economic profit (McConnell & Brue, 2008). In the definition for marginal revenue the term total revenue is mentioned. When a company is thinking about changing a products output or quantity (Q), it must think about how the total revenue will change. Total revenue (TR) is the total amount received from the sale of a given amount of output. It can be determined by multiplying the price by the corresponding quantity a company can sell. This brings us back to marginal revenue. Marginal revenue is determined by the change in total revenue divided by the change in quantity (McConnell & Brue, 2008). The formula for this is: MR=ΔTR/ΔQ Within the definition for marginal cost, the term total cost is given. Total cost (TC) is found by adding total fixed cost (TFC) and total variable cost (TVC) together. The formula for this is: TC=TFC+TVC. Once total cost has been determined then marginal......

Words: 581 - Pages: 3

50p Tax Hike Analysis

...50P Tax Hike Analysis Econ201 2/12/14 50P The 50P tax was a brilliant idea at one point or another. However in this current economy and the market failure this, in my opinion, this is not a piece of legislature that will help anything. The tax was made to help bring in revenue and to make the higher income people to pay their fair share. This seems to be a popular idea that the wealthier individuals aren’t paying their fair share of taxes although the wealthy pay the largest amount of taxes. Majority tax The 50P tax is no different; it raises taxes in a tough economic time and that is always a bad idea it doesn’t matter who the tax is on. When you raise taxes you actually decrease revenue and hurt the economy. To strengthen a stalling economy the “Fed” should pull back as much as possible without causing too many ripples. This would let the free market have reign and give a steady boost to the economy. The 50p plan is one that I like to call simple complex simple or a Majority tax.  £35,000 should pay tax around 20%. Income up to £150,000 you will pay tax at 40%, and any income you get above £150,000 you will pay tax at 50% which is where the 50p rate comes from. Great Britain had done away with that policy earlier, but it looks like it is back and here to stay. The total needed to handle Great Britain’s national debt is pitiful compared to America’s but they are two different countries and can’t be compared on that basis. Pros There are some good things to the......

Words: 830 - Pages: 4

Marginal Analysis Egt1

...Marginal Analysis Task 1 Before a company can know the maximum profit to obtain for their industry, they must review and consider many factors. Some of the concepts that are analyzed when making business product decisions are Marginal revenue, marginal cost, profit-maximizing and total cost. Marginal revenue is the total revenue charged when one more unit of output is produced. When you multiply the unit price by the quantity the company can sell this determines the total revenue earned. When the first unit is purchased and equals the marginal revenue this increases the total revenue. The marginal revenue will stay at the same original cost when the second unit is produced but the total revenue will increase. The second unit when sold will make marginal revenue stay the same by the total revenue will double in cost. Marginal revenue is equal to the change in total revenue over the change in quantity when the change of quantity is equal to one unit. The marginal revenue must be greater than zero when selling another unit increases total revenue. If the marginal revenue is less than zero then the sale of another unit will take away from the total revenue. This relationship then exists because the slope of the total revenue curve is measured by marginal revenue. The extra cost to produce one additional unit of output is called Marginal cost. To find Marginal cost you take the total cost and divide it with the production details of that unit. The total cost will include......

Words: 760 - Pages: 4

How Tax Cuts Help Revive the Economy

...How Tax Cuts Help Revive The Economy Introduction How can tax cuts help revive a poor economy? Many economists that are in favor of tax cuts argue that by reducing taxes, we can improve the economy by increasing spending. However, there are people who oppose them and say that tax cuts only help the rich because it can lead to a reduction in government services upon which lower income people rely on. No matter which side you agree with, they both have they’re pro’s and con’s depending on the current state of the economy. Understanding our countries Federal tax system and how they can implement certain tax cuts is important as it directly impacts the GNP. Since we are currently in one of the worst recessions, we must consider if tax cuts will help revive our economy. The Federal Tax System Our Federal tax system relies on a number of different types of taxes to generate revenues. The largest source of funds is the personal Federal income tax. Personal income taxes are levied against income, interest, dividends and capital gains, with higher earners generally paying higher tax rates. Another source of funds are payroll taxes. The payroll tax is a tax levied at a fixed percentage on salaries and wages, up to a certain limit and is paid equally by both the employer and employee. Payroll taxes have become an important source of revenue for the Federal Government and have grown more rapidly than income taxes as the government has raised rates and income limits. Payroll......

Words: 918 - Pages: 4

Cut in Income Tax Improves the Economy

...dependant on the improvement of four major factors, economic growth, balance of payments, unemployment and inflation. This should lead to steady economic growth that would lead to a steady increase in the productive capacity in the economy. Income tax is the percentage of income that people are taxed upon that is given to the government. There are many policies that can be used to tackle these certain goals, for example fiscal and monetary policy. Fiscal is a change in government spending or taxation, an example of fiscal policy is to reduce taxation and thus give consumers more spending power, hopefully increasing economic activity. Monetary policy is centred on interest rates, for example reducing interest rates to give consumers less incentive to save and thus increase spending and demand in the economy. These policies each have their own positives and negatives and thus usually are used in combination to manage the economy and to influence economic activity when needed, for example in a recession. Firstly, a cut in the income tax is a fiscal policy that is enforced by the government, it is enforced to attempt to increase demand in the economy. For example, a short run improvement to the economy would be that a decrease in income tax would result in households having more disposable income. The government then hopes that this money would be spent into the economy and thus increase economic activity and demand. This is a necessity for economic growth, for example from......

Words: 319 - Pages: 2

Tax Effect

...THE IMPOSITION OF TAXES ON THE DEMAND Author’s name Class name Professor’s name Institution City, State Date The imposition of taxes on supply and demand is frequently used to explain the effects of economic policy in economics. The supply curve is usually depicted on a graph with the price on the y-axis and demand on x-axis. The supply curve slopes upward demonstrating that when a price of a good with inelastic demand increases, its quantity supply also increases. However the demand curve slopes downward depicting that when the price of goods with inelastic demands fall, the demand increases. Both curves intersect the y-axis somewhere at some point (Green, 2008). The point of intersection is called the equilibrium level of supply and demand, and it shows the quantity producers of goods are willing to provide at the price buyers are willing to pay. An imposition of tax means charging duty on goods for example milk or fuel. When the price is added it has the effect of gearing the supply curve up by the tax charged. Therefore, an imposition in tax effects to an increase in income tax (Green, 2008). According to TR Jain (2008), a price effect arises when an increase in the prices of a commodity leads to increase in revenue. The increase in price tends not to affect the quantity of goods with inelastic demand consumers’ purchase. Consumers will consume the same amount of goods of inelastic demand regardless of whether the price increases or not, this increases......

Words: 375 - Pages: 2

The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures

...Supplement 2003 pp. 1–25 The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures Sanjay Gupta and Mary Ann Hofmann ABSTRACT: This study examines how variations in states’ corporate income tax regimes affect new capital investment by business. Using U.S. state-aggregated data from 1983 to 1996, we find in pooled and fixed-effects regressions that new capital expenditures by corporations in the manufacturing sector are decreasing in the income tax burden on property (measured as the product of the statutory tax rate and the property factor weight), and increasing at a decreasing rate in investment-related tax incentives. The effect of the income tax burden on property is more pronounced for states mandating unitary taxation or the throwback rule. Triangulating our empirical findings with prior analytical and simulation studies suggests the following hierarchy for the relative importance of major attributes of state corporate income tax regimes: the unitary or throwback requirement is most influential on incremental capital investment, followed by apportionment weights and tax rates, and, finally, investment-related incentives. Keywords: state taxation; apportionment formula; tax incentives, unitary business principle, throwback rule. JEL Classification: H20; H71. INTRODUCTION he purpose of this study is to provide empirical evidence on the effects of variations in states’ corporate income tax regimes on new capital......

Words: 13848 - Pages: 56

Tax Analysis for Gst

...CONTENT No.2 Title Page 13fewfqefqefqewf Introduction 1fqefqwefqeqef 2eqfewfwefefqefqefeq Findings – Tax Advisors 2wfqwefqewfqwefqefqw 3efqwefqewfwqefqwefqwef Findings – Individual 7efqwefwefwefwefweqfqwefq 4wefqwefqwefqwefqefq References 18wefqewfqewfqwefqwefqwefqwe fqwefqewfq 5wefqwefqwefqwefqwefqwefqwef Appendix 19qwefqwefqefqefqwefefwefweqfwefwqefwef 1. INTRODUCTION The Goods and Services Tax (GST) can be defined as a value-added tax that is levied on most goods and services sold for domestic consumption. The tax is implemented to provide revenue for the federal government. In Malaysia, the GST was scheduled to be implemented during the third quarter of 2011 but the implementation was delayed until the 1 st of April 2015. The Goods and Services Tax was tabled for the first time at the ‘Dewan Rakyat’ on 16 th of December 2009. Since there is a high number of criticism, it was delayed. On 25 th of October 2013, during the government’s reading of the National Budget 2014, the Malaysian Prime Minister, Dato’ Sri Najib Razak announced a GST tax of 6% will be implemented starting on the 1 st of April 2015 to replace the Sales and the Services tax. The implementation of the GST is a part of the government’s tax reform program to enhance the capability, effectiveness and transparency of tax administration and management. Since the government’s reading regarding GST in the National Budget 2014, there are a lot......

Words: 4702 - Pages: 19

How Can Tax Cuts Help Revive the Economy

...How can tax cuts help revive the economy? Based on the theory of the Business cycle we know that, the economy can raise or fall, over time. In the United States of America as everywhere else in the world when the economy rises it is an economic boom just what it sounds like when business is booming. When it falls the sound is bad, fear, just like a bomb with the decline of the GDP, high unemployment rate, increased business failure( prices fall, people purchase fewer products, and business fail ), and overall drop in living standards. This situation causes all kinds of disruptions to the businesses and the households, and the government always look for the solution to bring the economy back to the phase of recovery which may eventually lead to an economic boom again then the business cycle continue. Here are some of the solutions used by US government to keep the economy away from slowing too much such as the tax cut, decrease of unemployment rate, and government spending. In this paper we are going to focus our development on the tax cuts and the unemployment rates to answer and give our point of view on the topic in question here. First, theoretically, low tax rates would tend to give the economy a boost because they draw money away from the government and put it into the private sector. Households have money to spend which is favorable for the economy and small-business ownership also increases profit which also helps the economy. However the......

Words: 1530 - Pages: 7

Marginal Analysis

...In economics, marginal revenue is the revenue that an additionally produced unit will create, if sold. When a company is in a competitive market, the price of the unit sold does not change, so marginal revenue is the price of a single unit. The relationship between marginal revenue and total revenue is calculated when marginal revenue is equal to the change in total revenue divided by the change in quantity, when the change in quantity is equal to a single unit. Mathematically marginal revenue is calculated using the product rule formula of MR = d(TR)/dQ where MR equals marginal revenue, TR equals total Revenue, and Q equals quantity On the contrary, marginal cost is the cost incurred to create one additional unit. This would include for example the cost of additional equipment if it was needed to produce the additional unit. Marginal cost relates to total cost in that marginal cost is the change in total cost that comes when the number of units produced is increased by one. Total cost is found when adding fixed costs plus variable costs and multiplying by the amount of units produced. Marginal Cost is found by using the calculus formula of MC = dTC/dQ, where MC is equal to marginal cost, TC is equal to total cost, and Q is equal to quantity. Marginal cost is also the slope of the total cost curve when cost and quantity are represented on a graph. Profit is the amount of money a company makes when the total cost of production is subtracted from total revenue. If...

Words: 566 - Pages: 3

BEAST Show Time | A Ovelha Negra (Hrútar / Rams) 2015 | LEER MAS