...How Taxes Affect Businesses The domino effect of these taxes, that can be considered as costs, is certain to be felt all over the country and negatively impact Puerto Rico economy and business competitiveness. These taxes hit especially small and midsize businesses that don’t have the in-house expertise. The impact, with no doubts, will take a toll. Affected firms will be facing an extreme disadvantage with their peers in other states and nations. Employees will feel the effect through lower wages, low jobs offer, retention of personnel and promotions. More imposing and augmentation in taxes will make it more difficult for entrepreneurs that are actually established in Puerto Rico to ignore the welcoming invitations from other states or countries that offer lower taxes rate. Business taxes affect business decisions and top management will have to come up with alternatives, which might be from increases in prices of goods (also another problem since it causes an accelerating inflation) and services to relocate their business somewhere else, the retention process, market competitiveness, among others. Since prices increases were mentioned before, it should be noted that the IVU tax of 7% has created a gap between the price paid by those who buy goods and the price that sellers perceive. As a consequence of this gap, demand for goods decreases since consumers’ habits might have to be adjusted to income and on the other hand, the market size (specially the industries...
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...Cigarette Taxes: Do They Have An Effect On Reducing The Demand For Them? By Lenora Walker Virginia College June 02, 2014 Cigarette Taxes: Do They Have an Effect on Reducing the Demand for Them? Cigarette taxes may stop some from smoking but in the long run people will find a way to keep smoking. There are some that are quitting for health reasons. In 2005 there was a decline between 1.5 percent and 2.5 percent. If cigarette taxes are earmarked then it can cause problems in funding education, health services, or other programs that will most likely grow over time. Policymakers and advocates should consider if a cigarette tax increase is necessary. In 2009 President Obama asked for a budget request to increase cigarette taxes from $1.01 per pack to $1.95 per pack. In 2015 the Federal tobacco tax would be indexed for inflation. Researchers have found that by increasing the real cigarette price by 10 percent would reduce the number of young-adults smokers by 3.5 percent and the number of kids by 6 or 7 percent. The calls to the national quit line have increased by 30% in the past 12 months after they compared it in the 12 months before. Increasing the cigarette taxes has had an effect on non-smokers by reducing the second hand exposure. Studies have showed that people of the low socioeconomics look at price more than the general population. With a regressive tax the poor is the one who pays the higher percentage through their income taxes. The economic analysis has determined...
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...decrease in taxes. I will start with purchasing groceries; the amount of groceries that are purchased from a retailer will have an effect on businesses. The stores survival is based on getting consumers to spend money so they may stay in business and outperform their competitors. When consumers purchase groceries this affect, the government due to the taxes included in the prices that could impose a limit a person may purchase. Tracking consumers spending habits can help the government determined if the economy is strong or headed toward a recession. The groceries consumers purchase were produced on farms, which means a farmer or a company sold a product for themselves or a business that paid taxes on the revenue received. A company or farmer must pay taxes for equipment and products that are being used to produce their product and for employees. A consumer not only pays for the product they receive but government taxes. Massive layoffs of employees can have negative effects, not only on the company and individuals but also the government. When a company or business must lay off employees, this affects the economy due to the fact individuals will have less household income to spend in the economy. The past employer along with the government will have to pay unemployment benefits to the laid off employees. When the government and companies pay unemployment benefits to the mass of past employees, revenue is being lost, and the government may consider raising taxes as an option...
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...Capital structure theory Overview of capital structure effects Business versus financial risk The effect of debt on returns Basic Definitions • • • • • V = value of business FCF = free cash flow WACC = weighted average cost of capital rs and rd are costs of stock and debt re and wd are percentages of the business that are financed with stock and debt. • VU = value of unleveraged business • VL = value of leveraged business Capital Structure Theory • MM theory – Zero taxes – Corporate taxes – Corporate and personal taxes • Trade-off theory • Signaling theory • Debt financing as a managerial constraint MM Theory: Zero Taxes • MM prove, under a very restrictive set of assumptions, that a business’s value is unaffected by its financing mix: VL = VU • Therefore, capital structure is irrelevant. • Any increase in ROE resulting from financial leverage is exactly offset by the increase in risk (i.e., rs), so WACC is constant. MM Theory: Corporate Taxes • Corporate tax laws favor debt financing over equity financing. • With corporate taxes, the benefits of financial leverage exceed the risks: More EBIT goes to investors and less to taxes when leverage is used. • MM show that: VL = VU + TD. • If T=40%, then every dollar of debt adds 40 cents of extra value to business. MM relationship between value and debt when corporate taxes are considered. Value of business, V VL TD VU Debt 0 Under MM with corporate taxes, the business’s value increases continuously as more...
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...HOW TAXES AFFECT THE ECONOMY ECO 100 SURVEY OF CONTEMPORARY ECONOMIC ISSUES GREGORY WEINKAM MELISSA FUTRELL 8/9/14 INTRODUCTION How Taxes Affect the Economy For as long as I can remember taxes has always been a part of our daily lives. Taxes can often be a burden for most people, taxes are used for many functions. If it was not for taxes, our roads, public buildings would be a mess. Taxes are what thrives our emergency services such as, law enforcement, EMT, and fire/rescue, many of our healthcare offices also use tax payers’ money to stay open. The taxing process from distribution to collecting them has people on the fence with different point of views. I believe that if the government would lower taxes than our economy would have a positive effect on everyone which makes for a positive economy. In my paper, I will be discussing the affect that taxes have on our economy and what happens when the government raises and or lowers taxes. HOW TAXES AFFECT THE ECONOMY Taxes are a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc. (Brue, 2010) When thinking about taxes, if the government had 100% tax this would have a negative effect on the amount of taxes the government would get; and if you had to pay 100% tax, you would not work because you would be working for no income. If this was to occur then people would probably spend more time growing their foods and using the batter...
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...In the textbook “Public Finance,” second edition author John E. Anderson methodically analyzes Efficiency and Equity Effects of Taxes and Subsidies. Beginning in Chapter 10 Structure of Taxes, Chapter 11 Efficiency Effects of Taxes and Subsidies, Chapter 12 Incentive Effects of Taxation, and Chapter Equity Aspects of Taxes and Expenditures. In the author, Anderson, Chapter 10 Structure of Taxes starts out by focusing on a foundational understanding of tax systems, how they are designed, and how best to evaluate whether they work the way we would like them to work. Anderson goes on to state that, “we have an innate concern that the tax system be fair and efficient. We want a system that treats people fairly. Roughly speaking, we want a tax system that taxes on the basis of ability to pay, (p.289).” Anderson goes on to explain that in order to understand how tax systems work one must be able to understand what is taxed. He defines the term tax base as, “the item or activity that is taxed, (p.292).” He gives three examples of tax base. The first example is income tax. Income tax is according to Anderson, “applied to certain forms of income such as wages but not to other forms of income such as interest earned from municipal bonds. The second example is sales tax. Sales tax is according to Anderson, “applied to certain transactions, like the purchase of a good, but not other transactions, like the purchase of a service, (p.292).” The third example is Value-Added Tax Base. Value-Added...
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...Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 9 The Government and Fiscal Policy 9.1 Government in the Economy 1 Multiple Choice 1) Fiscal policy refers to A) the techniques used by a business firm to reduce its tax liability. B) the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C) the spending and taxing policies used by the government to influence the economy. D) the government's ability to regulate a firm's behavior in the financial markets. Answer: C Diff: 1 Topic: Government in the Economy Skill: Definition 2) Which of the following is NOT a category of fiscal policy? A) government policies regarding the purchase of goods and services B) government policies regarding taxation C) government policies regarding money supply in the economy D) government policies regarding transfer payments and welfare benefits Answer: C Diff: 1 Topic: Government in the Economy Skill: Conceptual AACSB: Reflective Thinking 3) What determines tax revenues? A) the income tax rate B) the rate of interest C) the money supply in the economy D) the rate of inflation Answer: A Diff: 2 Topic: Government in the Economy Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is INCORRECT regarding tax revenues? A)...
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...other commodities. On the other hand, businesses are also affected by the purchasing of groceries. For instance, they get high income from the purchases. However, this depends on the demand and supply of the groceries. If the demand for the grocery is high and supply is low than the businesses have more income (Colander, 2010). On the other hand, if the demand is low and supply is high than the purchasing the groceries provides the business with low income because the prices are low. Therefore, purchasing of groceries affects the businesses operations because they are determined by the amount they receive from such purchases. The purchase of groceries also affects the government in many ways. One of them is that the government determines the taxes to be imposed on the groceries, depending on the need. It also affects the government in determining other commodities to be sold and where they ought to be sold. Flow of resources Purchase of groceries is a personal consumption that represents the demand for groceries placed on the producers by the households. The...
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...give us humans a lot of utility. For oil producing countries, the prospects of exporting barrels of oil can be very exciting for fiscal revenues. The effect of oil production on fiscal revenues is largely due to the world oil price. In the last year and a half the price of oil has plummeted from $104/barrel to about $41/barrel today. This sharp decline in the price of oil has certainly hurt fiscal revenues of oil producing countries. It is also very likely that these countries do not enforce taxation. On the other hand, due to the volatile nature of oil prices, it is also rational to assume that oil-producing countries may enforce stringent tax codes. Stringent tax codes may be enforced to relieve budgetary pressures that may be as a result of lower oil prices. The purpose of this paper is to determine whether oil revenues have an effect on taxation. Understanding the effect of oil revenues on taxation is very important in terms of real world application. The information obtained from the analysis between the two variables will enable large producing oil nations to determine the kind of fiscal policy to undertake. It will help nations in planning budgets accordingly, while also helping governments determine whether there needs to be a change in tax rates to meet budgetary ambitions. For example, if there is negative effect between the oil revenues and taxation in a period where oil prices are low, a country may be inclined to increase tax rates. Literature Review Drawing...
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...Article Review: DO STATE CORPORATE INCOME TAXES REDUCE WAGES? Lincoln Memorial University Andrea B. Lee MBA 624 Public Policy & Finance Dr. Okeniyi Oke EXECUTIVE SUMMARY In this article, the author, Alison Felix, discusses the impact of state corporate taxes on wages. Felix describes the history of taxes and how prior research explains that corporate tax burden can fall on shareholders, consumers, and workers. In addition, this article examines the effect of corporate taxes across different education groups. Her purpose was to update and extend prior research to demonstrate how corporate taxes have a larger negative effect on more highly educated people, as well as low-income laborers in society. She describes how over the past 30 years, the magnitude of the negative relationship between taxes and wages. ANALYSIS To illustrate how corporate taxes began, the author describes how in 1911, Wisconsin was the first state to levy a successful income tax and soon other states adopted similar taxes. Currently, Nevada, Wyoming, and Washington are the only state that does no tax corporate income. For all the other states corporate tax revenues make up about 7 percent of total state tax revenues. How is this percentage figured? The author explains how different states have different tax structures. This causes complications when it comes figuring the tax base, determining what profit is taxable, and how much weight is placed on the corporation’s payroll, property,...
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...Research on the Topic Sin Taxes Name Institution Introduction It is undeniable fact that the issue of sin taxes existed long before the last financial crisis that hit the globe in the year 2008. The current global situation faced with challenges of health and financial crises, sin taxes are designed to maximize government expenditures with less loss and to reduce or regulate undesirable behaviors considered harmful to the society. The proposed sin taxes by various governments globally aim products such alcohol beverages, bullets, sugary soft drinks, fatty snacks, and gasoline among other products (Black & Mohamed, 2006). Therefore, this research will analyze in detail the importance of sin taxing to various commodities with the core aims of promoting healthy lifestyles, improving society health outcomes, reducing government expenditure, and enhancing environmental sustainability. The success of this research is highly dependable on the use of varied research articles, journals, and textbooks. Cumulatively, the research will illuminate light on the different benefits associated with the sin taxes. Sin taxes discourages people from adopting unhealthy behaviors (Reiter, 1995). The taxes are designed with the core aim of raising prices of the sinful goods to make people opt for healthier goods. However, this do not happen in accordance with the expectations since increasing the taxes on the sinful good leads to people substituting it with...
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...time period. In the United States, as in most countries, GDP is calculated on an annual basis. GDP measures a nation's productivity. GDP does not necessarily reflect a relative standard of living. Real GDP Real GDP expresses GDP in terms of base-year prices. A base year is the first in a mutually agreed upon series of years. Price level indexes in the base year are assigned an arbitrary value. Price levels in subsequent years in the series are expressed in values relative to the base year. This process provides for a more meaningful comparison of one year to another within the series. Nominal GDP Nominal GDP refers to the raw data produced by annual GDP calculations. These data are not adjusted for inflation. Because of the effects of inflation on economic indexes, nominal GDP does not accurately reflect changes in GDP compared to previous years. Unemployment Rate The unemployment rate reflects the percentage of the population that is able and willing to work and is looking for work, but is unable to find work. Inflation Rate The inflation rate is the rate at which the price of goods and services rises. Increasing inflation decreases the value of currency, which decreases buying power. Interest Rate An interest rate is the charge to a borrower for the use of an asset, usually money, expressed as a percentage of the principal. Interest is charged to compensate for the lender’s loss of use of the asset. A low-risk borrower will usually be charged a lower...
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...professor finds three quantifiable reasons that may explain why taxes in Sweden are high, yet the incentives to be productive remain. The first is third-party verification of taxable income. There is a lot of that in Scandinavia, but even so Sweden remains an outlier. The second one only seems to apply to Denmark: It has a clean and transparent tax system, without many loopholes and deductions. This keeps people from sheltering their income. It also keeps high-income foreigners from coming to or staying in your country. (Native Danes, in contrast, seem to be quite attached to their homeland.) Third, the Scandinavian countries subsidize a lot of things that are complementary to work – such as education, child care, elder care and transportation – thereby compensating for their high taxes. Here again, they are outliers. Other Organization for Economic Cooperation and Development countries reach very similar participation rates with very low levels of such subsidies. Would those policies work in other countries? Perhaps. But perhaps they are all just manifestations of a highly productive public sector that the people like to put to use to do stuff. Furthermore, the high taxation caused a lot of issue. One of the issues is inadequate income, the total outcome of all of the effects listed below is a large tax burden. And only workers feel the brunt of this burden, because only workers create wealth. When all of these effects are combined, the tax burden on the average worker is currently...
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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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...2. Review of literature 2.1 The incidence of sin taxes 2.2 The incidence of tax on pure rent in a small open economy 2.3 Tax incidence in bargaining 2.4 The general equilibrium incidence of environmental taxes 2.5 The tax system incidence on unemployment: A country specific analysis for the OECD economies: 2.6 Tax and subsidy incidence equivalence theories: experimental evidence from competitive markets 2.7 Tax incidence under oligopoly: a comparison of policy approaches 2.8 The incidence of income tax on wages and labour supply 2.9 The incidence of personal income taxation: evidence from the tax reform act of 1986: 2.10 Tax incidence when individuals are time-inconsistent: the case of cigarette excise tax 3. Conclusion References 1. Introduction: Government generally collect taxes to generate revenue and question arise here is that after imposition of taxation, which group will bear the tax burden. After implementation of tax, there would be the division of tax burden between byres and sellers which is known as tax incidence. Tax incidence is linked to the price elasticity of demand and supply. If supply is more elastic than demand then the tax burden falls upon the buyers and when the demand is more elastic than supply then the producers will bear the cost of the tax. Tax incidence is basically the analysis of the effect of taxation on the distribution of economic welfare. Tax incidence...
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