...AVI-YONAHFINAL.DOC FEBRUARY 26, 2002 2/26/02 5:38 PM Book Review Why Tax the Rich? Efficiency, Equity, and Progressive Taxation Reuven S. Avi-Yonah† Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Edited by Joel B. Slemrod.∗ Cambridge: Harvard University Press, 2000. Pp. 524. $57.95. In Greek mythology, Atlas was a giant who carried the world on his shoulders. In Ayn Rand’s 1957 novel Atlas Shrugged, Atlas represents the “ prime movers” —the talented few who bear the weight of the world’s economy.1 In the novel, the prime movers go on strike against the oppressive burden of excessive regulation and taxation, leaving the world in disarray and demonstrating how indispensable they are to the rest of us (the “ second handers” ). Rand wrote in a world in which the top marginal federal income tax rate in the United States was 91% (beginning at taxable income of $400,000).2 This is an unimaginably high rate by today’s standards, when the dominant view in Washington is that a marginal rate of 39.6% (the top † Irwin I. Cohn Professor of Law, University of Michigan. I would like to thank Yossi Edrey, Allen Graubard, David Hasen, Judy Herman, Don Herzog, Jim Hines, Bob Kuttner, Doron Lamm, Jeff Lehman, Kyle Logue, Dan Shaviro, Joel Slemrod, Dennis Ventry, and Larry Zelenak for their extremely helpful suggestions. All errors are mine. * Paul W. McCracken Collegiate Professor of Business Economics and Public Policy, University of Michigan. 1. AYN RAND, ATLAS...
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...Institution and Tax Policy Center. This paper was prepared for the Brookings Panel on Economic Activity, September 9-10, 2004. We thank Emil Apostolov, Matt Hall, Brennan Kelly, and Melody Keung for outstanding research assistance; Alan Auerbach, William Brainard, Robert Cumby, Bill Dickens, Doug Elmendorf, Eric Engen, Laurence Kotlikoff, Thomas Laubach, Maria Perozek, George Perry, Frank Russek, Matthew Shapiro, and David Wilcox for helpful discussions; and Eric Engen, Jane Gravelle, and Thomas Laubach for sharing data. ABSTRACT This paper provides new evidence that sustained budget deficits reduce national saving and raise interest rates by economically and statistically significant quantities. Using a series of econometric specifications that nest Ricardian and non-Ricardian models, we obtain evidence of strong non-Ricardian behavior in aggregate consumption. Consistent with several recent studies, we find that projected future deficits affect longterm interest rates, but current deficits do not. Our estimates suggest that each percent-ofGDP in current deficits reduces national saving by 0.5 to 0.8 percent of GDP. Each percent-of-GDP in projected future unified deficits raises forward long-term interest rates by 25 to 35 basis points, and each percent-of-GDP in projected future primary deficits raises interest rates by 40 to 70 basis points. Budget Deficits, National Saving, and Interest Rates September 2004 I. Introduction Economic analysis of the aggregate...
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...As recounted by Wanniski (associate editor of the Wall Street Journal at the time), in December of 1974 he had been invited to have dinner with me (then professor at the University of Chicago), Don Rumsfeld (chief of staff to President Gerald Ford) and Dick Cheney (Rumsfeld’s deputy and my former classmate at Yale) at the Two Continents Restaurant at the Washington Hotel in Washington, D.C. (just across the street from the Treasury). While discussing President Ford’s “WIN” (Whip Inflation Now) proposal for tax increases, I supposedly grabbed my napkin and a pen and sketched a curve on the napkin illustrating the trade off between tax rates and tax revenues. Wanniski named the trade off “The Laffer Curve.” I personally don’t remember the details of that evening we all spent together, but Wanniski’s version could well be true. I used the so-called Laffer Curve all the time in my classes and to anyone else who would listen to illustrate the trade off between tax rates and tax revenues. My only question on Wanniski’s version of the story concerns the fact that the restaurant used cloth napkins and my mother had raised me not to desecrate nice things. Ah well, that’s my story and I’m sticking to it. The Historical Origins of the Laffer Curve The Laffer Curve, by the way, was not invented by me; it has its origins way back in time. For example, the Muslim philosopher, Ibn Khaldun, wrote in his...
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...The Truth About Taxes and Economic Growth MORE TAX CUTS? The Truth About Taxes and Economic Growth Interview with Joel Slemrod Judging by the political scene in Washington, one would think that low taxes were the main source of economic growth in the United States and around the world. Even most Democrats dare not demand that President Bush’s tax cuts be rescinded. But this leading tax expert, a political centrist, argues that there is no compelling evidence that high taxes impede economic growth. Q There is a widespread belief among the public that low taxes generally mean rapid economic growth. The evidence does not seem to support that conviction. A. That is right. There are many different kinds of evidence one might look at. One place to start is to look across countries to see if there is a clear relationship between how much taxes— say, as a fraction of gross domestic product—a country collects and its economic performance. If you look at the relationship JOEL SLEMROD is Paul W. McCracken Collegiate Professor of Business Economics and Public Policy and director of the Office of Tax Policy Research at the University of Michigan. Challenge, vol. 46, no. 1, January/February 2003, pp. 5–14. © 2003 M.E. Sharpe, Inc. All rights reserved. ISSN 0577–5132 / 2003 $9.50 + 0.00. Challenge/January–February 2003 5 Interview with Joel Slemrod between that tax ratio and the level of prosperity, measured by GDP per capita, there is no supportive evidence for...
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...Supplemental Unit 5: Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will focus on fiscal policy, what it is and its potential and limitations as a tool with which to promote economic stability and strong growth. What is Fiscal Policy? When the supply of money is economic constant, government expenditures must be financed by either taxes or borrowing. Fiscal policy involves the use of the government’s spending, taxing and borrowing policies. The government’s budget deficit is used to evaluate the direction of fiscal policy. When the government increases its spending and/or reduces taxes, this will shift the government budget toward a deficit. If the government runs a deficit, it will have to borrow funds to cover the excess of its spending relative to revenue. Larger budget deficits and increased borrowing are indicative of expansionary fiscal policy. In contrast, if the government reduces its spending and/or increases taxes, this would shift the budget toward a surplus. The budget surplus would reduce the government’s outstanding debt. Shifts toward budget surpluses and less borrowing are indicative of restrictive fiscal policy. It is important to note that a budget deficit is different from the national debt. A deficit occurs when government spending exceeds revenue over a year, quarter or month. A deficit will increase the size of the national...
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...large purchase, decide on the timing, what lifestyle changes must take place, and finding a demographic are which will enhance all of these decisions. Take for example that a new baby is on the way and the present living conditions are not acceptable for raising a child. There are no schools nearby, no local pediatricians, supermarkets are scarce, and an apartment is just seems too small for all of the extra staples needed when a newborn arrives. This is one of the life changes in which one must take into account every consideration and great care in choosing whether or not to move, what the pros and cons will be and how to prepare financially for a move. Economics is defined as “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services (Mirriam-Webster Online, 2011), and economics greatly affects daily living. There are 10 principles that economists follow and can associate with daily living and financial changes on a small or large scale, and which can help to predict future trends in currency, unemployment, and housing. The 10principles of economics is also a good guide to follow when trouble-shooting personal, financial, and moral decisions to be successful on any new venture. Number one on the principle list is trade-offs. A trade-off is anything that you must give up to obtain what you want. A new home will be quite a costly venture so the need for efficiency will come into play, meaning...
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...prevalent. In this past election cycle, Senator Sanders said, “If the goal of health care reform is to provide comprehensive, universal health care in a cost-effective way, the only honest approach is a single-payer approach” (MIC 1). On the other side of the common two-dimensional political spectrum, normative assumptions exist too. While speaking about the economic pitfalls of net tax increases and big government, he mentions how people do not like paying taxes and that it is political suicide to pursue policies advocating for tax increases in relatively recent political climates, noted anti-tax activist Grover Norquist said, The governor of Nevada raised taxes and that was repealed, 80-20. Tennessee, Georgia, we’ve had a tremendous collection of votes against taxes. In Michigan, the Republican governor and the Democrats wanted to raise taxes, and that was defeated 80-20. In Maryland, Martin O’Malley’s lieutenant governor lost because O’Malley raised taxes. In Pennsylvania, the Republican...
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...scarcity of resources that forces individuals and society to make decision among alternatives . Human and property resources are scarce, so choices must be made about how best to utilize those little resources. 2) Allocation decision: economics assumes that any decision-making is based on “rational self-interest.” People make rational decisions to achieve the maximum satisfaction of a goal. customers try to get the highest value for their payments. Workers try to get the best job given their skills and abilities. companies try to maximize their profitability. 3) Opportunity cost: economics focuses on marginal analysis when making an economic decision. The marginal or “additional” costs from an economic choice are weighed against the additional benefit. If the marginal benefit outweighs the marginal costs, then a decision will be made to take the beneficial action. If the marginal cost...
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...com www.economicshelp.org 2 AQA Edexcel OCR • • • • • • • • • • • • • • • • • • Unit 5 Unit 4 Unit 4388 Costs Law of Diminishing Returns Economies and Diseconomies of Scale Production Decisions The Objectives of Firms Efficiency Competitive Markets Oligopoly Contestable Markets Monopoly Competition Policy Price discrimination The Labour Market Poverty and Alleviation of Poverty Market Failure Cost Benefit Analysis Privatisation Regulation of Privatised Industries www.economicshelp.org 3 Costs • • • • • • • • Fixed Costs: Variable Costs: Total Costs: Marginal Cost: Sunk Costs: These are fixed costs that do not vary with output. E.g. cost of building a factory These are costs that do vary with output E.g. electricity, raw materials Fixed + variable costs This is the cost of producing an extra unit These are costs that are not recoverable e.g. advertising = = = TC / Q VC / Q FC / Q Average Total Cost (ATC) Average Variable Cost (AVC) Average Foxed Costs (AFC) The Law Of Diminishing Marginal Returns • • • Total Product (TP) Marginal Product(MP) This is the total output produced by workers This is the output produced by an extra worker Diminishing Returns occurs in the short run when one factor is fixed (e.g. Capital) If the variable factor of production is increased there comes a point where it will become less productive. Therefore there will...
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...Econ 308 Midterm (Average Revenue) (Marginal Revenue) 1.) a.) # Of Operations | Total Harvest | Average Harvest | Marginal Harvest | Marginal Profit 0 0 0 0 0 1 40 40 40 15 2 75 37.5 35 10 3 105 35 30 5 4 130 32.5 25 0 5 150 30 20 -5 6 165 27.5 15 -10 7 175 25 10 -15 8 180 22.5 5 -20 9 182 20.22 3 -22 b.) To figure out the number of logging operations that maximizes the total profits in the logging industry, the number of operations in a stretch of rainforest should be operating up to a set point where the value of the addition to the total harvest exceeds the opportunity cost of a logging operation. The number of operations should stop at four since the fifth operation would bring in $20,000 in marginal revenue, which is less than enough to cover the costs of $25,000 per week. With that being said, four operations would maximize total profits in the industry. When we add up the difference between marginal revenue and marginal profit for the first four boats, the resource rent is $30,000 per day. c.) If profit-maximization is the only guiding principle to enter the logging industry, there will be a constant stream of newcomers looking for a profit and taking advantage of the open...
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...Term Papers and Free Essays Browse Essays 1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the viewpoint of a bondholder. (Your answer should be more qualitative than quantitative!) The following factors weave into the risks and attributes of the company from the creditors’ point of view: A. UST had seven pending health related lawsuits at the end of 1998. The outcomes of these suits are uncertain. Despite the major Medicaid state settlements, lawmakers are expected to continue to push for new laws to combat youth tobacco use. Other litigation against tobacco companies is expected to continue, especially suits filed by individuals. This uncertain litigation and legislative environment makes the future cash flows of UST risky B. UST is a dominant player and market leader and its strategy is to combat entrants by launching similar products, rather than cutting prices. But the recent market erosion by small companies has raised concerns. And UST’s “counter attack” has not been effective in competing against price-value brands. The resignation of his CFO and President of tobacco unit further raise the uncertainty of the company’s efficiency of solving the market erosion problem. C. The previous uncertainty is enhanced by a lawsuit that alleged that UST had violated antitrust and advertising laws and participated in anti-competitive conduct. Should UST lost...
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...presidential frontrunner Hillary Rodham Clinton is promoting tax measures that would increase federal revenues by $1.1 trillion over the coming decade, according to a new analysis. Compared to Republican plans, which typically cut taxes, her proposal could help stabilize the nation’s ballooning debt if she also finds a way to reduce existing government spending. Related Stories [$$] GOP Candidates Need Better, Pro-Growth Tax Plans The Wall Street Journal Bernie Sanders' Tax Plan: Here's How Much the Wealthiest Americans Would Pay Motley Fool How Much in Taxes Does Bernie Sanders Want You to Pay? Fortune Will Americans Get "Berned" by Sanders' Tax Plan? Motley Fool 4 tough questions that Trump and Sanders need to answer MarketWatch Peter Schiff: China will Lose the Currency War Wall Street Daily Sponsored Clinton’s proposals for boosting taxes on high-income earners, modifying taxation of multi-national corporations, doing away with fossil fuel tax incentives and increasing the estate and gift taxes would fall hardest on the top 1 percent of taxpayers, while leaving 95 percent of Americans relatively unscathed, according to an analysis released on Thursday by a joint venture of the Urban Institute and the Brookings Institution. Clinton’s tax plan, including some leftover ideas from the Obama administration, would almost certainly encounter stiff opposition from the GOP controlled Congress which opposes any tax increases. Moreover, Clinton has advanced a raft of high-priced...
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...Stock Price Sensitivity to Dividend Changes ∗ Cesare Fracassi Department of Finance - UCLA Anderson School of Management Email Address: cesare.fracassi.2009@anderson.ucla.edu First Draft April 4th , 2007 Current Draft: July 29, 2008 Abstract This paper examines the stock price sensitivity to dividend changes. The Dividend Signaling, the Free-Cash-Flow, the Maturity and the Catering Hypotheses all predict an average positive (negative) reaction to announcement of a dividend increase (decrease). However, these hypotheses have different cross-sectional predictions. This paper documents that the positive stock price response to dividend increases is due primarily to the signaling of higher future earnings, to the managers catering to the time-varying premium assigned by the market to dividend paying stocks, and partially to the reduction of agency problems. On the contrary, the negative price response to dividend decreases is mainly due to the transition from a mature life-cycle stage to a decline stage with higher systematic risk, as maintained by the Maturity Hypothesis. Keywords: Dividend; Signaling; Overinvestment; Life-Cycle. JEL Classification Numbers: G14, G35. ∗ I would like to thank Albert Sheen for his constant support and excellent insights. I would also like to thank Antonio Bernardo, my mentor over the years, and Mark Garmaise and Walter Torous for their helpful comments. All errors are mine. 1 1 Introduction The impact of...
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...WORKBOOK ANSWERS Edexcel A2 Economics Unit 4 The Global Economy This Answers document provides answers for the questions asked in the workbook. They are intended as a guide to give teachers and students feedback. Topic 1 Poverty and inequality in developed and developing countries Measuring poverty and inequality 1 A standard of living that fails to provide basic needs, such as food, shelter and clothing. (1 mark) Often measured by the number falling below a threshold level of income such as a $1.25 PPP a day. (1 mark) 2 The term refers to those who fall below a certain threshold income or poverty line. (1 mark) A standard of living that falls significantly below the majority. (1 mark) In the UK and EU, this is defined as those earning less than 60% of median income. (1 mark) 3 a Measures the percentage of households that experience overlapping deprivations in three dimensions: education, health and living conditions. (1 mark) A person who is ‘poor’ is deprived in at least 30% of the weighted indicators. (1 mark) b Used to measure absolute poverty in less developed countries (1 mark) and its variables are: the percentage of a population likely to die before the age of 40 years (1 mark); the percentage of people over the age of 15 years who are illiterate (1 mark); the percentage of children under the age of 5 years who are underweight (1 mark); the percentage of people without access to public and private services such as health care and...
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...spending by the federal government now exceeds the 2007 level by about $1 trillion. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. On the other hand, the Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up. The author thought economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. Zhiyu Li Investment Dr. Richard W. Taylor October 10th 2012 World War II Stimulus and the Postwar Boom Despite two years of fiscal and monetary stimulus, the U.S. economy is sagging. During World War II, there was no investment in civilian infrastructure and the government placed severe restrictions on consumption. Today, households carry a much greater relative debt burden than they did in 1929, largely due to a 25-year mortgage binge. Between 1980 and 2007, disposable income grew...
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