U.S. Tax Policy Although Smokers Research Proposal

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Total Length: 2407 words ( 8 double-spaced pages)

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Works Cited

Thorndike, Joseph J. "The IRS Is Hiding Its History." The Washington Times.

December 19, 1997, p. A23. February 18, 2008. http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/9de7fcd59915a3be85256e430079327d?OpenDocument

Question

After 9/11, the Federal Reserve Bank, then led by Alan Greenspan, used monetary policy reduced the interest rate, or the rate that consumers must pay to borrow money. This did encourage individuals to spend more. However, it is still debatable if this was the most vital component in extricating America from the throws of economic recession. Government spending, or fiscal as opposed to monetary policy, is often seen as a more direct and superior way to rapidly change economic conditions. Fiscal policy was required to stimulate America's recovery from the Great Depression, according to conventional wisdom, although some still argue that it was the Hoover administration's monetary policy that was ineffective, not that monetary policy was ineffective altogether.

But most economists believe that, to get the economy 'moving' again, spending by the government works -- there is no question about it, whether spending on infrastructure, as occurred during the New Deal or on armaments during World War II. Arguably, the spending on public works is not simply a stimulus for individuals to spend more and make them secure in their jobs, but can make private commerce more effective.

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However, the government may run into problems if it spends too much during times of prosperity, and then must deal with the bureaucratic 'fall out' of having to cut back pet projects and programs. In other words, government spending is a difficult genie to put back in the bottle, although it has been a necessary genie, given that monetary policy alone may be ineffective. Also, if the government's spending is not managed wisely, it can 'tip' the economy into inflation. Theoretically, the government can cut back to hem in inflation, but this is not always politically feasible. And finally, "the effects of any fiscal policy are not the same on everyone. Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group. In times of economic decline and rising taxation, it is this same group that may have to pay more taxes than the wealthier upper class' (Heakal 2008)

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