Economy in the News: Tax Cuts for Essay

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Economy in the News: Tax Cuts for Business

In today's current economic situation within the United States of America, citizens are increasingly interested in facets of the economy that were once able to fly under the radar with minimal notice from economic laymen. However, with the country still dealing with the effects of a massive recession, economic initiatives undertaken within the country have come under intense scrutiny from the American public, who have been continuously bombarded with news regarding these economic initiatives and their political ramifications through constant coverage in the mainstream media. One such economic initiative that has received massive coverage in the news and media is the topic of tax cuts for businesses. In viewing the basis for this economic decision, its micro-economic facets, and the affect that constant news coverage around the topic has had within the political spectrum and within the larger realm of public opinion, one can better gauge the affect that such policy decisions and news coverage has had on American society as a whole.

Tax Cuts for Business

In order to understand the economic significance of tax cuts for businesses, one must first understand the basis of a tax cut itself. A tax cut, in simple terms, is a reduction in taxes, which bring about a decrease in the real income of the government and an increase in the real income of those whose tax rate has been lowered (Fox 1). Depending on the original tax rate, tax cuts may provide individuals and corporations alike with an incentive for investment which stimulates economic activity. The longer term macro-economic effects of a tax cut are not predicable in general, as they depend on how the taxpayers will use this additional income along with gauging how the government will adjust to its reduced income level.

In terms of tax cuts for businesses, such cuts are utilized to help businesses grow and undertake new works without the restrictions of heavily financial burdens. Such cuts are believed to increase technology and innovation, and has been asserted by many politicians as being the basis for government investment in American business, and therefore in the American communities, American people, and the American dream. In the current economic setting under the Obama Administration, and with lingering impacts of Bush tax cuts, the debate is on as to whether these tax cuts for businesses have helped or hurt. Conservatives declare that big business, and often small ones are doing better than ever despite the effects of the economic recession. They assert that profits are up, taxes are low, and the money is in. However, Liberals largely disagree, noting that tax cuts to businesses have done nothing to create jobs since the inception of the cuts, and they argue that ongoing tax cuts will never create jobs. Such opinions are strong and unrelenting, and are consistently added to by this debate's incessant broadcasting within the news.

Micro-Economic Evaluation

In understanding such tax cuts within a micro-economic framework, one must understand that micro-economics is the branch of economics that deals with the study of the behavior of households and small businesses, alike, with business paying taxes on the cost of producing goods and services, such as payroll taxes and business property taxes (Kimmons 1). In understanding this, one must also note that changes in tax policy, such as raising or reducing taxes that businesses pay, affect consumer spending patterns, the prices of goods and services, and the supply and demand of these respective goods and services that are being offered for public consumption.

In micro-economics, tax cuts are viewed as the alternative to increased spending when the government wishes to considerably expand aggregate demand. The multiplier effect of any tax cut is less than that of the same dollar increase in expenditures, increasing disposable income (Micro-economics 1). Additionally, many economists favor tax cuts over increases in government spending on the grounds that these tax cuts allow for greater flexibility. For example, taxes can usually be cut in a manner that is faster than increasing government expenditures. A tax cut, especially within the business world, immediately increases disposable income and stimulates aggregate demand promptly (Micro-economics 1). Moreover, tax cuts leave businesses free to spend their disposable income as they wish, which is in sharp contrast to the complete control that the government would have over resource-allocation involved in increasing government spending on goods and services (Micro-economics 1).

Political Affiliations, Media Attention, and Public Opinion

Upon seeing the basis of business tax cuts and their respective micro-economic evaluation, the focus now falls upon the presence of such issues within the news. In recent months, President Obama's proposed tax cuts and tax policy initiatives have sparked continued debate within the American societal landscape and have drawn lines in the sand between Democrats and Republicans who argue for considerably different policy undertakings to take place.

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Because of this continued political debate taking place between Democratic and Republican leaders, nearly every aspect of the fight continues to be broadcast within the media, with news journalists consistently covering the debate, as well as the public opinion these debates have stirred up.

The debate has arisen from President Obama's tax initiative that was signed in December of last year, which contained a package that extended Bush-era tax rates for two-year and gives a one-year payroll tax cut to most Americans. The tax package also included a business tax cut that the New York Times asserts, "Could blow a hole in state budgets," which is based on a provision allowing businesses to deduct the full value of new equipment purchases from their taxes through 2011 (Cooper 1). This facet has gained significant attention in the news and has angered state representatives and the public throughout the country as the cut, which intended to spur the economy by encouraging businesses to spend more money on equipment, could end up costing 19 states as much as $5.3 billion in lost revenue over the next few years, significantly going against the desired micro-economic effect of placing revenue back into the hands of the economy through giving businesses purchasing power (Cooper 1). In taking away the purchasing power for businesses to utilize their tax cut revenue in other areas of the economy, instead being able to write these purchases off completely, tax cuts in this area have been largely viewed as counter-productive, especially within the minds of Conservatives, who argue against the alteration of former President Bush's cuts.

While Democrats in the media and in the public argue that these tax cuts are doing what they should in order to bring the economy back to a full state of stability, many Republicans and conservatives are arguing that the current tax policy regarding business cuts is simply not enough. This is only one facet of the current tax plan that has angered Conservatives and the American public, and this fact has played a massive role in the news and in its coverage of the current Republican Party's race to the presidential ballot. The Washington Post reports that, "Corporate tax reform is looming large within the Republican Party, with all the major presidential candidates pushing for . . . lowering corporate rates in exchange for closing loopholes and deductions" (Khimm 1). Republican front-runners argue that such loopholes, which contain massive discrepancies between tax cuts for big business and tax cuts for small business, need to be leveled out in order to insure that small businesses do not continue to get the short end of the stick in governmental tax policy, which in the past has led to many small businesses being forced to shut their doors, especially during the previous recession.

Alternately, many Democrats have argued that in order to bring the United States economy back to the successful status it once had, that the only option for success is to revert back to tax initiatives that have worked in previous years, under previous liberal presidents. For instance, Business Week recently reported New York Mayor, Michael Bloomberg's assertion that, "Failure to adopt a comprehensive plan of spending cuts and tax cuts . . . risks continued economic stagnation" (Goldman and Przybyla 1). In viewing this belief system, many argue that such old policies would simply not work in this new altered state in which Americans reside. Bloomberg notes that in returning to past policies, such as the higher tax rates set by President Clinton, the nation could get back on the right economic track. "Clinton-era tax rates, plus closing some tax loopholes and ending wasteful subsidies would save $8 trillion and effectively bring our budget back into balance by 2021," Bloomberg noted (Goldman and Przybyla 1). However, such a tactic is easier said than done, and no amount of political pressure has seemed to work in altering the status of business tax cuts as a hot-button issue within the news or within the realm of public opinion, that remains largely dissatisfied with the status of the economy and with President Obama's economic tax policies regarding businesses.

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