The Clinton Economic Plan, circa 1993   Term Paper ID:27360 Click to get this paper

Essay Subject: Discusses President Clinton's initial economic plan in 1993, which increased taxes greatly & reduced spending minimally.... More...

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Paper Abstract: Discusses President Clinton's initial economic plan in 1993, which increased taxes greatly & reduced spending minimally. Paper Introduction: President Clinton recently unveiled his economic plan to stimulate the economy and to reduce the deficit. Although his plan calls for cutting spending, at the heart of the program is a substantial increase in tax rates for individuals as well as for corporations. Personal income tax rates will be increased up to 40% for incomes above $250,000. Corporate income taxes will be increased to 36% from 34%. On the other hand, spending reductions will accrue mostly in defense and in the trimming of administrative costs. The issue to be faced is whether the Clinton plan will serve its dual purpose of stimulating the economy and reducing the deficit, and each side has its proponents. Murray L. Weidenbaum, a professor at Washington University in St. Louis, calls for increased budget cuts and Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Some might also divert more of their activitiesinto the underground economy, which is an evasion of taxes. Thisoccurred partly because Congress and the Reagan Administration wereunwilling to reduce the growth in federal spending. According to the Wall Street Journal, higher U.S. Challenge, pp. Potential saversand investors will realize less interest income and profit if marginal taxrates are high, and they will therefore consume more currently, forgoingfuture consumption. The Clinton Administration is proposing a significant increase intaxes in order to cut the budget deficit. This tax cut worked well. Withmore incentive to earn and report income during the 198 s, the share of allfederal income taxes paid by the top 1% soared from 17.9% in 1981 to 27.6%in 1988 (Gwartney & Stroup, 199 , p. Personal income taxrates will be increased up to 4 % for incomes above $25 , . The solution to cutting the deficit, says James C. A reduction in marginal tax rates increases the reward derived fromadded work, investment, saving, and other activities that become lessheavily taxed. C. He would see the Clinton plan as such a confession offailure, while Patrick M. M. Another example of an effective tax cut is the 1964 tax reductioneffected during the Johnson administration. The resultwas that the British economy stagnated while areas of London where highsociety gathered abounded with conspicuous consumption of luxury goods (pp.21 -211). 111). Budgetary quandaries. (1987). & Stone, G. Economics. Corporateincome taxes will be increased to 36% from 34%. This group is known as the supply-side economists, and theyprovided the foundation for the Reagan tax policy, which led to significantreductions in marginal tax rates in the United states during the 198 s.According to the supply-side economists, there is a danger that very hightaxes may result in severe disincentives against work efforts and privateinvestment, causing actual GNP and tax revenues to fall. D. (1993, February 17). Murray L. ReferencesBoarman, P. AfterPresident Kennedy was assassinated, the legislation was passed by Congressand signed into law in early 1964. Taxes, taxes, taxes. Although his plan calls for cuttingspending, at the heart of the program is a substantial increase in taxrates for individuals as well as for corporations. Glenview, Illinois: Scott Foresman.Gwartney, J. Ending the budget deficit without economic pain. These substitutions both enlarge the effective resource baseand improve the efficiency with which the resources are applied. In light of this evidence, a strong argument can be made that thebudget deficit can best be reduced by reducing taxes along with controllingspending. It will take away competitive advantages from the U.S.in the world market. For instance, Congress enacted a 5% tax cut in 1981, anadditional 1 % cut in 1982, and another 1 % cut in 1983. Kennedy had recommended legislation cuttingpersonal income tax rates by almost 2 % over a two-year period. The Wall Street Journal, p. 269). People shift into these activities away from leisure, taxshelters, consumption of tax-deductible goods, and other forms of taxavoidance. Thegovernment should adopt rules that restrict spending in this view. If taxes are too high, many taxpayers will choose leisure overadditional work and will consume immediately from income instead of savingand investing their money. 47-52.Byrnes, R. (199 ). & Stroup, R. Legislators favoring budgetcuts are reluctant to support higher taxes because without a meaningfulrestraint on spending, there is no assurance that the additional revenueswill be used for deficit reduction rather than a spending increase.Weidenbaum notes that "there are ways of curbing the deficit that would domore economic harm than good. President Clinton recently unveiled his economic plan to stimulatethe economy and to reduce the deficit. 211). New York: Harcourt Brace Jovanovich.Miller, J. In theearly 198 s, supply-side economists suggested that lower tax rates expandoutput so much that tax revenues would actually increase. (1993, February 18). Evidence of this sort of behavior was provided whenwealthy people in Britain went on shopping sprees in the 197 s, buying furcoats and Rolls-Royces. Society, 22(1), pp. Supply-sidersargue that high income tax rates erode incentives to work and to invest,and income therefore shrinks as tax rates climb. (199 , November-December). Persuaded by his economicadvisors, President John F. L. This is why supply-sidersbelieve that the president's tax proposals will leave us with a much weakerU.S. A reduced tax rate, on the other hand, will helpstimulate the depressed economy. Boarman, Professor of Economics at NationalUniversity in San Diego, is much more concerned with the need to reduce thedeficit and feels that increasing the marginal income tax rates on personsacross the board can reduce the budget deficit. W. T. . Macroeconomics: Private and public choice. Tax increases that reduce saving andinvestment are prime examples. It was not seen as worthwhile to invest because ofhigh inflation and high British tax rates on investment income. Forexample, establishing parameters for the budget and threatening to veto anybill outside those parameters would likely reduce the deficit. economy for years to come, converting a manageable budget problem intoa full-blown economic crisis (Alan Reynolds, 1993, A16). L. Weidenbaum, a professor at Washington University in St.Louis, calls for increased budget cuts and decreased spending to addressthese national economic problems, and he states: "In the currentenvironment, an increase in taxes is a confession of failure to controlspending" (p. Sham cuts on spending. The issue to be faced is whether the Clinton planwill serve its dual purpose of stimulating the economy and reducing thedeficit, and each side has its proponents. To reduce the deficit,spending and taxes must be reduced (Byrns & Stone, p. A12.Reynolds, A. The Wall Street Journal, p. Economicgrowth and jobs will suffer, just as they did when Canada, German, andJapan imposed higher income and sales tax rates in 199 , and when HerbertHoover and Lyndon Johnson did in the U.S. On the other hand,spending reductions will accrue mostly in defense and in the trimming ofadministrative costs. He states that increasingthe marginal tax rates has an effect at the microeconomic level that isvisually imperceptible and yet yields revenues that in macroeconomic termscan make a significant contribution toward reducing the deficit. Such actions would reverse the beneficialeffects of the 1981 tax cuts on saving, investment and economic growth"(pp. Two-earner families willbecome one-earner families; executives will take more pay in the form ofperks and pensions; middle aged men and women will retire younger; feweryoung people will bother to earn advanced degrees or risk starting newbusinesses; investors will shift into tax shelters and tax-free bonds; andcorporations will get back into debt to minimize taxable profits. 262). Miller III (1993),is not increasing taxes but an increase in discipline on spending. (1984). Thus, no matter what the rhetoric, thechances are that all the revenue from the taxes will be translated into aspending increase, not a deficit reduction. The real taxrevenue derived from the top 1 % of taxpayers increased during the 1981-1985 period even though their tax rates were reduced substantially. A16.Weidenbaum, M. This means that given taxrevenues might be generated by both a high tax rate and a low one.Potential workers may respond to high tax rates by engaging in many morenonmarket activities, such as do-it-yourself projects. . Between 198 and1985, federal revenues rose above 3 %, but government outlays grew bynearly twice that amount, resulting in record budget deficits. A higher tax rate will stifle growth by reducing thenational tax base. tax rates, ifenacted, will soon yield less revenue, not more. The solution to controlling thedeficit lies not in increasing taxes but in decreasing taxes along withreducing spending. In fact,there is evidence that whenever there is an increase in government revenue,Congress simply spends the money. Outputincreased, and unemployment, which had been hovering near 6%, fell below 4%in 1966 (Gwartney & Stroup, p. In order ultimately to control thedeficit, however, it is essential that reduced taxes be coupled withreduced government spending. This was the ideabehind the "Laffer Curve" promulgated by the prominent supply-sider, ArthurLaffer. 1 8- 1 9.----------------------- 6 1 8-1 9). Byrns and Stone (1987) describe the idea behind the Laffer Curve asbeing that very low tax rates might be increased to generate increases intax revenues, but that eventually a heavily tax-burdened population woulddecide that the extra effort necessary to generate extra income is counter-productive. Yet, Professor Boarman recognizes how difficult this is toaccomplish given the fear Americans have of increased taxes, a fear Boarmancalls "taxophobia." Boarman simply feels that America's most effectiverevenue-producer is and remains the personal income tax and concludes that"the power to tax is the power to bring a destructive deficit under controland thus to change for the better our economic lot." While several economists, including Boarman, have written in favor ofincreasing taxes to reduce the deficit, another group of economists haschallenged the view that this is an effective way of addressing theproblem. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.