Clinton's Plan to Stimulate the Economy   Term Paper ID:27893 Click to get this paper

Essay Subject: Critical analysis of Clinton's plan for economic stimulation. Plan calls for increased business & personal income taxation, & for spending cuts (mostly defense & administrative spending). Examines possible effects of plan on deficit & economy.... More...

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Paper Abstract: Critical analysis of Clinton's plan for economic stimulation. Plan calls for increased business & personal income taxation, & for spending cuts (mostly defense & administrative spending). Examines possible effects of plan on deficit & economy. 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 decreased spending 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. 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. economy for years to come. Personal income taxrates will be increased up to 4 % for incomes above $25 , . Yet, professor Boarman recognizes how difficult this is to accomplishgiven the fear Americans have of increased taxes, a fear Boarman calls"taxophobia". Inessence what goes on in the American two party system is that Republicanstend to lower income taxes on wealthy individuals while Democrats raiseIncome taxes but create large loopholes. In fact,there is evidence that whenever there is an increase in government revenue,Congress simply spends the money. An excellent example is the recent proposed tax increase bythe Clinton Administration. Tax increases that reduce saving andinvestment are prime examples. A higher tax rate will stifle growth by reducingspending. Based on this evidence, a strong argument can be made that the budgetdeficit can best be reduced by reducing taxes along with controllingspending. AfterKennedy was assassinated, the legislation was passed by Congress and signedinto law in early 1964. 47-52.Byrns, R. W. Boarman simply feels that American's most effective revenue-producer is and remains the personal income tax and concludes that "thepower to tax is the power to bring a destructive deficit under control andthus to change for the better our economic lot". He would see the Clinton plan as such a confession offailure, while Patrick M. L. They feel it will convert a manageablebudget problem into a full-blown economic crisis (Reynolds, 1992, A16). (1984). In order ultimately to control the deficit,however, it is essential that reduced taxes be coupled with reducedgovernment spending. Persuaded by his economicadvisors, President John F. At the same time, government outlays increased by nearlytwice that amount, and the result was record budget deficits. in theworld market. T., & Stone, G. The suggested raising the income tax rate forincome above $15 , from 31% to 36%. Another example of an effective tax cut is the 1964 tax reductioneffected during the Johnson administration. A16.Weidenbaum, M. Forexample, establishing parameters for the budget and threatening to veto anybill outside those parameters would likely reduce the deficit. 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. Economics. 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. The result is astagnating economy and a decrease in private investment (pp. Challenge, pp. 111). (199 ). The Clinton Administration is proposing a significant increase intaxes in order to cut the budget deficit. 1 8-1 9). Between 198 and 1985, federal revenuesrose above 3 %. Corporateincome taxes will be increased to 36% from 34%. Society, 22(1), pp. New York: Harcourt Brace Jovanovich.Miller, J. Miller II (1993),is not increasing taxes but an increase in discipline on spending. However, they are keeping a capitalgains tax at 28% so people will be trying to devise tax strategies to shiftincome into capital gains area and therefore, be taxed at a lower rate. L. In the early 198 s, critics of Clinton suggested that lower tax rateswould expand output to such a degree that tax revenues would actuallyincrease in spite of lower tax rates. (1993, February 18). Budgetary quandaries. Congress enacted a 5% tax cut in 1981, an additional 1 % cut in1982, and another 1 % cut in 1983. Byrns and Stone (1987) describe the Laffer Curve as a critique of theidea that increasing taxes will lead to economic growth. Such actions would reverse the beneficialeffects of the 1981 tax cuts on saving, investment and economic growth"(pp. (1993, February 17). 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. President Clinton recently unveiled his economic plan to stimulatethe economy and to reduce the deficit. A reduced tax rate, on the other hand, will help stimulatethe depressed economy. 21 -211). Ending the budget deficit without economic pain. Thegovernment should adopt rules that restrict spending in this view. It will take away competitive advantages from the U.S. This tax cut worked well. A12.Reynolds, A. According to The Wall Street Journal, if taxes are raised people lookfor loopholes. One reasonfor this was because Congress and the Reagan Administration together werenot willing to reduce the growth in federal spending. If the deficit isgoing to be reduced, spending and taxes must both be reduced (Byrns &Stone, p. This is whysupply-siders believe that President Clinton's tax proposals will weakenthe U.S. This group is know 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. 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. Kennedy had recommended legislation cuttingpersonal income tax rates by almost 2 % over a two-year period. Because of increased incentive to earn and report incomeduring the 198 s, the share of all federal income taxes paid by the top 1%soared from 17.9% in 1981 to 27.6% in 1988 (Gwartney & Stroup, 199 , p.262). (199 , November-December). C. 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. On the other hand,spending reductions will accrue mostly in defense and in the trimming ofadministrative costs. 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. but have some similarities, allof which imposed higher income and sales tax rates in 199 , and of HerbertHoover and Lyndon Johnson, who did the same thing in the U.S. In addition consumption may increase inthe short-term, as happened in England in the 197 s. Murray L. The solution to controlling thedeficit lies not in increasing taxes but in decreasing taxes along withreducing spending. Individuals will also increase their leisure time and theunderground economy will expand. As proof, they point to the factthat the real tax revenued derived from the top 1 % of taxpayers increasedduring the 1981-1985 period even though their tax rates were reducedsubstantially. (1987). Output increased, andunemployment, which had been hovering near 6%, fell below 4% in 1966 (p.269). The solution to cutting the deficit, says James C. The Wall Street Journal, p. Glenview, IL: Scott, Foresman,Gwartney, J. 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. 1 8- 1 9.----------------------- 7 From the Lafferperspective, higher taxes lead inevitably to lower incentives to work andinvest. D., & Stroup, R. M. 211). Macroeconomics: Private and public choice. A higher tax rate will stifle growth by reducing the nationaltax base. This was the ideabehind the "Laffer Curve" promulgated by the prominent supply-sider, ArthurLaffer. Sham cuts on spending. ReferencesBoarman, P. The Wall Street Journal, p. Also, there is another problemwith incentive according to the article: "Two-earner families will becomeone-earner families; fewer young people will bother to earn advanceddegrees on risk starting new businesses; investors will shift into taxshelters and tax-free bonds; and corporations will get back into debt tominimize taxable profits." There will be less economic growth and fewerjobs, and this can be seen in the experiences of Canada, Germany, andJapan, which are not identical to the U.S. 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.