Analysis of Barack Obama's Fiscal Policy Proposal

Analysis of Barack Obama's Fiscal Policy Proposal

  • Submitted By: SHRUTIPARNA
  • Date Submitted: 02/23/2009 8:44 AM
  • Category: Business
  • Words: 1167
  • Page: 5
  • Views: 1156

Obama’s major goal seems to be achieving greater socioeconomic equity. Tax relief for lower-income families and seniors has been one of the major proposals in his election campaign, and it would provide them with more disposable income. This could stimulate consumer spending and aggregate demand, and improve the economy. However, the government would lose a huge chunk of revenue. Increasing taxes for families with incomes above $25,000 will help offset this loss. This could help decrease social inequality, but the higher-income families usually support the market for status and luxury consumer goods. Increasing their taxes by a large amount would not only reduce this spending, but also encourage them to save more money. The tax increase is bound to affect demand at the higher end of the market. A higher income cap, or at least a lower surcharge, would smooth out these effects. Overall, though, the tax relief should increase consumption and combat deflation.
Cutting taxes for small businesses and start-ups would certainly create more jobs and reduce unemployment. However, increasing capital gains taxes on business will decrease the amount they have to spend on investment. Only the major corporations can make significant investments, so reducing their confidence may slow down economic recovery. The only advantage is that the tax gains will reduce the government’s budget deficit and help fund the other initiatives to help the poor. Dividend taxes do not seem to be a good idea. In the current economic situations, most businesses are not even making enough surplus profits to pay out dividends, and then taxing those dividends would reduce that amount even further. It would also reduce investor confidence, causing stocks to fall. Higher corporate tax rates always weaken the stock market. Given that the current financial crisis was mainly caused by crashing stock markets and a credit crisis, Obama should pay more attention to the effect his policies will have on the...

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