Taxation, Fairness and Ability-to-Pay Priciple

The notion of fairness and the ability to pay often coincide with the distribution of government finance. Equity is the art of distributing resources fairly and justly. Often, taxes conflict with people’s willingness to produce and invest. When there is too much government involvement in market activities, there could be general inefficiency. Monopolistic power influences the prices of products (Hyman, 2011). Modern industrialized nations have been able to implement fair economics through the equitable distribution of resources. On other hand, nondemocratic nations have not been able to advance in equity and efficiency because of the lack of administrative ease, unjust laws, and poor governance that put a cap on human progress. Efficiency entails raising revenues with minimal loss. When there is accountability and good bookkeeping and accounts, resources can be distributed efficiently and equitably. Thus, equity and efficiency can be achieved simultaneously. It is the responsibility of government to provide some of the most important goods and services we deserve. Through the benefits principle, people pay taxes in accordance with the benefits they receive from their governments.

Because of differing views in political and social economy, many prefer the ability-to-pay principle. In this principle, taxation is paid according to one’s financial ability. Two significant notions lead to equity: vertical equity which implies that people should pay taxes according to their means and the horizontal equity which implies taxpayers sharing same abilities should pay the same amount of taxation. Wealthy residences may receive better services than poor neighborhoods because they pay more for protective services. That is why we see heavy police presence in poor neighborhoods and less worries about crime and lawlessness in wealthy neighborhoods.

In American tax history, there have been divergent views on equity and efficiency among political leaders for years with little agreement from major political party leaders. Differing ideological foundations and self-interests are some of the factors that retard American tax reforms. The bailout of Fannie Mae contradicts the concept of equity and efficiency. Bailouts result in growing deficits to the nations’ economy (Stiglitz, 2008). After being elected president in 1980, tax reform became part of Ronald Reagan’s administration. Two tax laws were signed in 1981 and 1986 respectively during Reagan’s tenure of office. The term deregulation became a global concept during Reagan years (Fukuyama, 2008). Reagan believed that higher taxes undermined economic efficiency. Reagan saw the 50% marginal tax on the wealthiest as distorting economic incentives. However, Bill Clinton tilted the scale of balance by swinging the pendulum of political debate to a distinctly different direction.

Clinton, while running for office in 1992, felt that the rich were not paying their fair share of taxes. He felt that such existing unjust tax practices contravened his views on vertical equity. Clinton raised tax rates on the wealthy to 40%. A more sweeping reform emerged when George W. Bush ran for office (Gale & Orszag, 2004). Bush kept some of Reagan’s tax themes while reversing part of Clinton’s tax increases. Bush ended up reducing the highest tax rate to 35%. During George W. Bush’s tenure of office, his tax policies significantly conflicted with state tax policies and administration (Posner, 2007). According to Gale and Orszag (2004), Bush’s 2001 tax cuts were meant to “starve the beast”. In the 2008 presidential campaign, Senator John McCain proposed making Bush’s tax cuts permanent while Barack Obama recommended raising the top marginal tax rate. It is hard for the science of economics alone to determine the best way to level the objectives of equity and efficiency. The issue of efficiency and equity requires the collective involvement of economics and political philosophy.

References

Fukuyama, F. (2008). The fall of America, Inc. Retrieved from 

            http://gt32pcourse.50webs.com/files32p/FukuyamaFallOfAmerica.pdf

Gale, W.G. & Orszag, P.R. (2004). An economic assessment of tax policy in the Bush

           

            Administration, 2001-2004. Boston Law Review, 45, 1157.

Gale, W.G. & Orszag, P.R. (2004). Bush Administration tax policy: Starving the Beast? Tax

            Notes. Retrieved from http://taxpolicycenter.org/UploadedPDF/1000705_Tax_Break_11-

           15-04.pdf

Hyman, D.N (2011). Public finance: A contemporary application of theory to policy. Thousand

           Oaks, CA: Sage Publication, Inc.

Posner, P. (2007). The politics of coercive federalism in the Bush era. Publius, 37 (3), 390-412.

Stiglitz, J.E. (2008). Reversal of fortune. Vanity Fair. Retrieved from                 

            http://www.columbia.edu/cu/news/clips/2008/10/09/ReversalVANITY.pdf

Social Security and Privatization

The United States government spends significant amount of money to care for its disabled and aging citizens and other sectors of society that need government attention. Through the Social Security Administration (SSA), eligible citizens receive monetary remuneration for the period of their disability and retirement. Social security benefits usually come from payroll deductions which are taxes on the wages paid by firms to their employees. Revenue from payroll taxes is earmarked to pay for social security benefits when the employee attains a certain age or when the employee becomes incapacitated. Social security is a program that supports the aging elderly population. On the other hand, Medicare is a program managed by the government that has been created to provide medical services to the retired population.

According to Prasad and Gerecke (2010), social security has significant impacts on the social, political, and economic arrangements of a nation. It has been the major lubricator of many functions such as the war against poverty and inequality, human rights, generation of economic growth, and nation building. Social security payments have enabled many governments to uplift the living standards of its growing elderly population.

 Since everyone in a democratic society has the right to social protection, social security promotes individual economic growth and modernized human capital. Social security is contained in Article 22 of the Universal Declaration of Human Rights. It guarantees everyone the right to social security. The same universal declaration calls for the provision of social security to those in need of resources as a result of circumstances beyond control or as a result of aging, unemployment, or widowhood.

In the next two decades, the number of people attaining age 65 or older is expected to double. The overall general population of the U.S. is expected to increase by less than a quarter percent (Quinn, 2002). According to Quinn (2002), the ratio of social security contributions to beneficiaries fell to 3.3 to 1 a decade ago while it was 5 to 1 in 1960. This drastic decline in social security contributions has been a worrying trend for many political leaders determined to make a difference in the lives of the aging and disabled Americans. Economists are rarely right but never in doubt about their economic projections and so the motto: raro cum verita; numquam in dubito (Quinn, 2002), has long been the factor behind the many predictions we see in many scholarly writings. No doubt reforming social security is inevitable and that leaving it to its current state may spell disaster in the near future.

Equity and Efficient in Social Security

Beginning with Augusto Pinochet’s pension privatization reform of Chile in 1989, there has been concerted efforts globally in the movement from distribution in social security to efficiency in public policy (Brooks, 2002). In developed nations, two factors may be realized as being behind social security reforms: demographic and economic changes. Equity and efficiency in social security are two aspects that need to be given utmost attention. Since social security dispersions are based on needs and earnings histories, it is wise to ensure recipients are treated equally. There has to be a nationwide efficiency in the distribution of social security benefits to recipients.

To ensure retirees receive their benefits in full, the government has to raise the ratio of those making contributions to social security. According to Hyman (2011), the birth rate in the U.S. has been falling drastically and this sends a red signal that in the future, those contributing to social security could fall below the projected expectations.

As Hyman (2011) postulates, pay-as-you-go is a pension program that finances retired workers where contributions come from taxes paid by or collected from currently employed workers. The current global social security system has come a long way with Germany starting the arrangements followed by a succession of European countries including UK, France, Sweden, and Italy respectively (Hyman, 2011). It is not the first time changes have been made to social security. It happened in 1977 and 1983. Under current law, workers may retire at age 67 to be eligible for social security benefits.

Partial privatization of social security

There have been proposals for the privatization of social security for sometime and whether it becomes a credible program that sticks around is a subject of much concern. Social security can be privatized only if it can be handled with care by the entity that wins the contractual rights. Under close observation by the government, social security can be left in the hands of private enterprises and still deliver the right effects. Social security can be partially privatized by allowing investments to be made in private equities and mutual funds. In privatizing social security, retirees will have personal responsibility and make serious decisions about their retirements and induce them to add important elements missing from their portfolios (Quinn, 2002). On the other hand, social security recipients will have the chance to make decisions in making more saving plans for their future.

The partial privatization of social security will lead to income inadequacy and individual equity (Quinn, 2002). Initially, social security was created as a way of protecting aging citizens and not as savings vehicle. Therefore, it must not be perceived as an investment scheme that generates returns but rather as an investment that is directed to the common good. According to Gandásegui (2011), one question Barak Obama has not answered to this day is whether he will oppose the privatization of social security that has been an issue of disputation among previous administrations. There has been growing debate in the political arena on social security reforms and social security privatization. Social security reform has been debated during the Clinton and Bush years (Quinn, 2002) and even to this day, under Obama, Americans seem to have several options for social security.

At times, fighting for social security benefits come with quandaries since the age limit is making would-be retires plunge into unnecessary criminal activities. Take for example the case of the 62-year old employee who was laid off after the drug manufacturer he worked for shut down its door in 2003. Timothy J. Bowers of Ohio found that it was better to commit a crime so he could end up in jail for three years and upon his release he would attain age 65 and start drawing social security benefits (Cooper, 2008).

Not all people are able to manage their finances prudently. Privatizing social security may benefit some and put others at a loss. While some critics may argue against the current system in place, others feel it has to be given a facelift so that recipients have a chance to play a role. Hyman (2011), borrowing a leaf from the recommendations of the Advisory Council on Social Security, gave several options on the privatization initiative. The first option which is maintaining benefits calls for leaving social security in its current state while making slight adjustments. The second option that is in reference to individual accounts amounts to 1.6 increase, in taxes, beginning 2011 for retirees attaining age 67. The third option, personal security accounts is the most radical of all. This is the 5 percent portion paid by employers which would be allocated to social security trust fund. Social security, a program that has been in existence for years and service to millions, will remain debatable for years to come. It all depends on how the men and women in leadership will handle in the near future. Supporters and opponents of this great initiative will have to tread carefully and ensure the aging population is treated with respect and care. Making minor alterations may lead to greater mistakes and spell disaster and consequently put the lives of millions at risk.

References

Brooks, S.M. (2002). Social protection and economic integration: The politics of pension reform in an era of capital mobility. Comparative Political Studies, 35 (5), 491-523.

            DOI: 10.1177/0010414002035005001

Cooper, M. (2008). The inequality of security: Winners and losers in the risk society. Human Relations, 61 (9), 1229–1258. DOI: 10.1177/0018726708094911

Gandásegui, M.A. (2011). President Obama, the Crisis, and Latin America. Latin American Perspectives, 178 (38), 109-121. DOI: 10.1177/0094582X11407609.

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Mason, OH: Western, Cengage Learning.

Prasad, N. & Gerecke, N. (2010). Social Security Spending in Times of Crisis. Global Social Policy, vol. 10 (2), 218–247. DOI: 10.1177/1468018110366627

Quinn, J.F. (2002). Social Security Reform: Options for the Future. Journal of Applied Gerontology, 21(2), 257-272. DOI: 10.1177/07364802021002008.

The Economics of Supply and Demand

In economics, economists put much emphasis on supply, demand and markets. The demand part is the behavior of individuals and households; supply relates to the conducts of firms; while market is the interaction between supply and demand (Clotfelter, Ehrenberg, Getz, & Siegfried, 1991). There are dramatic resource constraints in private and public goods and despite sales being feasible, it is difficult to sell public goods even though these goods may be the primary focus of governments. Typically, governments operate as perfect monopolies. Impure public goods could be price-excludable public goods and congestible public goods.

When crowding or congestion reduces benefits to the consumer, especially when more consumers are accommodated, it is referred to as congestible public goods. This implies a congested road that decreases benefit to existing users because of traffic slowdown. When beneficial goods can be priced, they are referred to as price-excludable public goods. This could be shared private facilities such as tennis courts, dinning halls, and swimming pools that could cater for a larger part of a neighborhood.

Public Higher Education

Public higher education, as the name denotes, focus on the provision of higher education to the public. Because the government sets the tuition fees and the curriculum for instruction for public higher education, interference by private hands is minimal. Public goods become impure goods as a result of violation or abuse. Governments provide higher education to society because private institutions may not be in a position to provide the necessary education at affordable prices. While the government provides higher education without regard to class or status, private institutions may provide private education based on consumer level of financial resourcefulness. Thus, poor citizens who cannot afford to send their children to private institutions look to the government to provide education for their children and for themselves-public education that is cheaper and government administered. Whether private or public, higher educational institutions are financed by taxes collected from the public. Education has external benefits when provided at a lower level to children in society. But it can also be withheld from those who fail to pay for it. Governments with the means may provide free education to their citizens so that society can be civilized and educated and healthy human capital maintained.

Health System in the United Kingdom

The United Kingdom enjoys a system of healthcare that is distinct from that of the United States of America. This non-excludability alternative healthcare system is a public good funded by the general taxation of society by the UK government. Unlike the U.S. where insurance companies are the major providers of health care insurance, in the UK, healthcare is universal. However, people with enough income and who are financially stable and can afford advanced care may choose to seek better healthcare alternatives by visiting private medical institutions that employ advanced medical procedures.

Yellowstone National Park

The case of Yellowstone National Park fits the congestible public goods category. In this case, Yellowstone National Park is subject to crowding because of the collective consumption. According to Hyman (2011), in some cases, congestible public goods are price-excludable public goods. The park provides recreation for families and friends and tourists who travel great distances to come and enjoy the beautiful scenery and natural wonders that is exclusive to the park. Visitors are charged a small amount of fee that is instead used for park operations. Instead, the fees collected form the public is used to maintain the park and look after the welfare of the amalgamation of wildlife and exotic plant species, and the general environment. Misuse and pollution of a park visitors may lead to negative externality which, according to Hyman (2011), is the harmful effects of pollution and hazardous waste and damage done to people and property. In case visitors pollute Yellowstone National Park, the government may impose more tax on visitors to overcome the environmental disasters that come with their visitation.

References

Clotfelter, C.T., Ehrenberg, R.G., Getz, M., & Siegfried, J.J. (1991). Economic Challenges in Higher Education: Introduction to "Economic Challenges in Higher Education". University of Chicago Press.

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Thousand Oaks, CA: Sage Publications, Inc.

Public versus Private Goods

Changes in technology and advancement in social services have tremendously impacted the delivery of public and private goods, negatively or positively, depending on geographic location. Some part of society may be attracted to technological innovation more than others. Technology has been friendlier to the youth and to the educated elite because of their lifestyles and love of modern tools and technology. Advances in technology have allowed humanity to enjoy the luxuries that come with public and private goods.

Technology is better placed in advanced democracies than in sluggish autocratic or authoritarian regimes where economic strangulation, economic retardation, political obscurantism, underdevelopment, human rights violations, and control of general societal development prevail. Nations that have advanced in the use of technological tools include those in North America, Western Europe, and in Australasia. Economic factors and freedom contribute to technological distribution and use.

Benefits from public goods can be shared unlike private goods that are consumed by individuals who purchase the private good based on their ability to purchase. A public good is like the national defense where its consumption is shared by all as every citizen has to be defended by the arsenals of weapons in use in case of aggression. Streetlights are another example of public goods. Others include clean air and light houses that equally benefit the general public without one person enjoying the significance of that public good more than the other person.

To avoid working in hazardous conditions and overcome the risk of purchasing products of concern, citizens look to their governments for information. It is a government prerogative to oversee economic stabilization and engage in monetary and fiscal policy implementations to deter unemployment and economic downfall.

Efficiency leads to confidence and an increase in purchasing power. Efficient distribution of products and resources elevates consumer confidence. A change in welfare distribution is trade-off that leads to improvement in efficiency. Efficiency is best attained in a perfectly competitive market system as everyone’s monetary income depends on the amount of production in resources owned and returns obtained. However, income distribution is dependent on individual willingness and ability to pay (Hyman, 2011).

Public goods may be categorized as non-rival or rival. Public goods are non-rival in consumption because they can be consumed by many in a given locality. An example of non-rival good is television and radio transmissions. Because of the non-exclusion characteristic, pure public goods are non-rival. Private goods are considered rival in consumption because of the competition among consumers.

The value and worth of public and private goods delivery and transfer of business transactions is best determined when there is efficiency and social equity. Life becomes up to standard and comfortable in nature when there is a streamlined delivery of public and private goods and equitable distribution of social services. Humans tend to decline services that are not worth and out-of-date. Citizens prefer to pay for public goods in accordance with the benefits they get from that public service (Mikesell, 2011). The same applies to private services or public goods.

Changes in income alter human consumption of goods. The introduction of the welfare system such as the food stamps program allows many to become free riders. Free rider is at times seen as having the same characteristics as the Tragedy of Commons. The fact that free riders do not contribute to the food stamps and other supplemental nutrition programs, advocates opposed to spending feel it causes financial strain on the laboring, tax paying citizen. 

According to Hyman (2011), there is no unanimously agreed upon and appropriate manner when it comes to distributing goods and services to consumers. Pure private goods cannot be supplied by the government and financing cannot be made through taxation.

Technology has tremendously altered the way humans consume goods and services. In recent times, technology has played a vital role in the delivery of healthcare and healthcare services. People are getting advanced medical attention and better treatment options. States, counties, and smaller jurisdictions have seen the proliferation of hospitals regardless of whether they are public or private. Technology has simplified how hospitals operate and patients’ waiting periods have been slashed to almost a half. Nowadays, patients can be operated on by specially trained doctors and nurses using advanced equipments and modern tools.

Many from the outside world, including Kings, queens, presidents and prime ministers, CEOs, and ordinary wealthy individuals come to the US to seek medical attention in hospitals such as John Hopkins Hospital, Mayo Clinic, and other reputedly advanced medical institutions treating such diseases as cancer and brain injuries and other serious diseases that cannot be treated anywhere else except the US. Majority of these hospitals, because of advancement in technology and resource distribution, are either publicly or privately owned.

In modern times, businesses have prospered significantly as a result of internet communication. Business transactions have become more widespread with the proliferation of internet technology. The United States leads the world when it comes to conducting business on the internet. Business is more robust and diversified especially during the holidays. Millions of Americans buy gifts over the internet and then send to friends and relatives without even seeing the product being shipped. Shipping companies and the post office have been experiencing increased traffic due to demand and supply.

Thus, this novel business transaction has emerged the most valuable tool in the dissemination of products and information. Business over the internet is being conducted efficiently and equitably. Transfer of products and services has been increasing over time. Big ground transportation companies have taken the lead transferring tons of materials, gadgets, and other equipments ordered over the internet. The airline industry also plays a major role shipping public and private goods far and wide. The marine industry, though slower than road transportation and air travel, has also increased its business acumen. The tonnage of materials being shipped overseas has been increasing yearly as result of the production of advanced freighters that travel great distances.

Big corporations have transformed the way they do business. At times, it is not necessary to ship heavy or light equipments, books, toys, or other necessities abroad. Since many corporations have now branches in many parts of the world, delivery can be done by an overseas company that has the ordered product in its stores. Someone living in New York can order a laptop for a friend or a relative living in a slum in a developing country. Delivery of the item will be performed by a branch store located in the country of destination.

Income plays a great role in modern economics. Many destitute people get public goods provided by their governments while the affluent and wealthy rely heavily on private goods according to their financial capabilities. Welfare economics has undergone tremendous changes and these changes have been made possible by human advancement in the science of economics. The world has become a global village and no wonder the consumption or production of goods has been advancing with each passing day. As the world continues to change and goods and service increase, the manner of conducting transactions will also change for the better unless otherwise unnecessary restrictions emerge.

References

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Mason, OH: South-Western, Cengage Learning.

Mikesell, J.L. (2011). Fiscal administration: Analysis and applications for the public sector (8^th ed.). Boston, MA: Wadswoth, Cengage Learning.

Private Deliberation and Political Equilibrium

When society deliberates on issues pertaining to their needs, they follow established rules and political guidelines that make their actions legally acceptable. For the sake of bringing in changes that benefit everyone involved, citizens make public choices to advance their political agendas. People make their voices heard by contacting their representatives through the use of postal mail, social media, e-mail, and voting in select locations among other things. Bringing changes to the living conditions of constituents is one of the most burning issues that face elected representatives. In turn, elected representatives find means to ensuring their constituents remain satisfied by deliberating on significant issues that need to be addressed in political forums. This system of interaction is only possible in democratic systems.

Societies living under authoritarian or dictatorial regimes often suffer exclusion, marginalization, stratification, censorship, oppression, and coercion. In non-democratic systems, it is the government that makes decisions concerning the production of goods and services without consulting the mass. This system of administration contravenes human needs and expectations and society’s inalienable rights to freedom and opportunities. Import of goods and services becomes the prerogative of select individuals who have been shoved into office without public scrutiny and open electoral selection. The public benefits little from the export of goods and services in draconian governing institutions.

According to Hyman (2011), political processes are rules contained in a nation’s constitution. It is up to the citizen to cast vote or take part in an election and vote for the representative who will carry the issue of political contention forward for approval. The theory of public choice evolved as a means to ensuring people’s choices influences the democratic political process. In essence, it is a theory that has been formulated in such a manner that it studies how goods and services are supplied by governments through the observance of efficiency and equity. In a modern democracy, each individual citizen is allowed one vote to influence election processes.

Political equilibrium

Equilibrium is a situational change especially in markets when demand and supply are in par or are equal while equilibrium price is when there is a balance between quantity supplied and quantity demanded. Politics defines how a nation’s economy functions and it is the working relationships between the voter and the representative that help shape the effective delivery of a nation’s goods and services. Taxation is the major tool that advances the operation of the police and national defense. These two institutions are significant in the preservation of law and order and without them it is difficult to keep the law. While the police are responsible for internal security and fighting crime including corruption and other public malpractices, the national defense defends the nation from outside aggression. Nations that have weak police force and disorderly armies tend to collapse as a result of security lapse.

Interest groups have been gaining ground in modern times with the world seeing the proliferation of these groups in all aspects of society. Interest groups usually lobby for causes that serve their interests. When a government experiences the rise of an interest group, such that an administrative takeover evolves, society has to shoulder the maximum cost as distribution will be in favor of the most powerful. The negative administrators imposed by bureaucrats at times bring in deadweight loss and losses in political transaction costs.

 Taxes are compulsory deductions paid by citizens of a nation. Part of these taxes is what makes the existence of a police force and national defense possible. While ordinary citizens may abhor government action on their income, the benefits they get in return for protection is worth taking.

References

Hyman, D.D. (2011). Public finance: A contemporary application of theory to policy (10^th ed.).

            Mason, OH: South-Western, Cengage Learning.

Private Contracting

When a government cannot deliver services to a section of society, it has to contract private citizens to do the job efficiently and equitably. Rural areas, like urban areas, have the right to the delivery of services and the provision of vital goods regardless of distance and incommunicability. Whether in the deep mountains of Alaska or in distant Hawaii or among farming communities sandwiched between rural areas, it is the responsibility of the government to ensure the delivery of services by the public or private companies. The United Sates Postal Services (USPS), despite being a big corporation, still lacks the resources to penetrate some areas that are beyond its reach such as the many rural areas scattered countrywide in almost every state of the U.S. People benefit from the services provided by private companies such as the delivery of postal mail and in return service providers generate revenue that will cover the costs of the services provided and wages for its employees. There are many rival companies that are in competition with USPS.

A monopoly carrier owned by the government, USPS, a postal service that is known for its delivery of first-class mail, remains in stiff competition with private mail carriers (Baseman, 1981). In the science of economics, joint cost implies everyone paying for his or her share of services provided. Because distance is a factor in the delivery of mail, rural service recipients have to pay more than urban dwellers or urban mail recipients (Hervé & Yves, 2002). In cross-subsidization, individual service seekers are responsible for the service demanded and not the irregularity of the cost function. Differences arise in full responsibility theory and partial responsibility theory. In the full responsibility theory, John should pay the same price as Janet despite John living in a far away place. In the partial responsibility theory, John and Janet have to pay the same amount for service provided. To ensure every citizen gets the services provided by the postal services, a portion of revenue collected from urban communities has to be given to the postal services so it can continue providing services to the rural areas.

References

Gary, F. (1981).Studies in Public regulation. In Baseman, K.C. (Ed.), Open entry and cross-subsidization in regulated markets (pp. 329-370). The MIT Press.

Hervé, M. & Yves, S. (2002). Responsibility and cross-subsidization in cost sharing. Montréal, Québec: Département de sciences économiques, Université de Montréal.

Bureaucracy and Political Economy

When bureaucracy functions in a systematic manner that rejuvenates the economy and increases productivity, there will be an increase in output and growth in the wealth of the nation and people will be well off. However, when bureaucracy functions in a negative manner such that production dwindles and the economy follows a negative direction, society plunges into a dangerous situation that could take years to resuscitate. Bureaucracy is known for the delivery of services and the application of good organization that is responsible for producing the services demanded by society.

When we speak of corrupt bureaucracy from a global perspective, what comes to mind are the negative behaviors of the former Soviet Union bureaucracy-a bureaucracy that was known for malpractices–malpractices that put their own citizens in political, social, and economic predicaments such that the trail of economic disasters they left behind continues to haunt millions of struggling Soviets to this day. According to Hyman (2011), bureaucrats and politicians are the two most important foundations that influence political equilibriums. In the current state of affairs of America’s political systems, making public choices, taxation, the marginal benefits of public goods, and the distribution of benefits all have a hand in political equilibrium.

In modern democracies such as the U.S., people usually vote on issues of major concern that lead to political equilibrium. Collective public choices lead to majority rule and exceptional political equilibrium. Political equilibrium is influenced by several factors that are all related to politics. Majority rule that allows a party to have overwhelming powers to change or implement new policies, legislator record as a guiding principle for executing tough, suitable, and sustainable policies, the systematic approach of delivering goods and services, and citizen effectiveness in productivity are some of the factors that influence political equilibrium. The struggle for political supremacy often seen in political rallies and political debates are models of political behavior where political parties jostle to maximize votes. The enthronement of a politician elevates the political clout of his or her political party and his or her personal self-esteem while the rise of a political party that has been in political hibernation for sometime leads to sweeping governmental operations that could either be good for the nation or disastrous depending on the new administrative strategies applied.

References

Hyman, D.D. (2011). Public finance: A contemporary application of theory to policy (10^th ed.).

            Mason, OH: South-Western, Cengage Learning.

City Supply of Public Goods

The City of Kansas City in Missouri serves a large population. The city delivers services such as social welfare, public safety, and municipal services that include refuse collection and emergency medical services. The city administration oversees the smooth running of the international airport that is broadly known as MCI and the smaller municipal airport that is known as Charles B. Wheeler Airport in downtown Kansas City. City management is responsible for overseeing the effective operation of the city’s parks, community centers, and golf courses. The city also provides fire and police protection to its growing population. Bridges and street maintenance, street lighting and traffic light maintenance, sewage and water treatment, and overseeing the welfare of zoo animals are examples of the city’s day to day operations and management procedures. On the other hand, the city provides social services to those who are in need. Caring for every sector of the city is a good way of ensuring all are served well and that equitable distribution of resources go side by side with the concept of efficiency. According to Hyman (2011), eliminating wasted effort leads to more production from resources that are available for use. Thus, city management is making every effort to ensure effective delivery and use of existing services.

The following is a breakdown of the city expenditure on the various departments that make the operation of the city a reality. Tax collection is a major source of revenue for the City of Kansas City. General economic malaise and the effects of persistent depression have had adverse effects on the smooth running of the city (kcmo.org, 2012).

City of Kansas City Expenditure on Police:

2009-10: 190,095,187

2010-11: 191,363,123-There has been an increase in expenditure from the previous FY.

2011-12: 196,489,763- There has been an increase in expenditure from the previous FY.

City of Kansas City Expenditure on Health:

2009-10: 22,262,620

2010-11: 22,908,958-There was an increase of expenditure from the previous years.

2011-12: 23,311,688-A decrease was seen from the previous FY expenditure.

Neighborhood and Community Service:

2009-10: 28,378,184

2010-11: 28,978,888-An increase was seen from the past FY expenditure.

2011-12: 25,183,986-There was a decrease from the past FY expenditure.

There have been economic imbalances and variations in expenditure as can be seen from the city’s expenditure for the noted departments. Such imbalances and variations may have been caused by the slowing of the nation’s economy and the global economic meltdown that started in 2008.

States and the federal government at times experience budget deficits and budget surpluses. When there is excess spending in government over government receipts, there is a probability of budget deficit. When there is excess of government receipts over government spending, governments experience budget surpluses. Governments often find themselves facing the challenges of fiscal budgets. To overcome the burden of budget deficits, governments turn to the public to borrow what is necessary to cover the deficit. This is done to ensure the effective operations of government and avoid government shutdown.

References

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy. Thousand Oaks, CA: Sage Publications, Inc. 

Kcmo.org (2012). City of Kansas City, Mo. Submitted activity budget FY2012-13.  Retrieved from http://www.kcmo.org/idc/groups/citymanager/documents/citymanagersoffice/submittedactivitybdgtfy13.pdf

Total Social Benefit

Total social benefit, according to Hyman (2011), is the quantity of economic good available in a given period that provides certain satisfaction to those who consume it. Taxpayers expect to get acceptable returns for every penny spent though that may not be the case as services provided may not meet their expectations. Populations often make poor economic projections either because they do not have the knowledge or they may be driven by interests that suit their political contributors. When a good is provided to deliver extra gain, society expects to gain marginal social benefit.

The minimum amount of money required to compensate producers of a certain good is the marginal social cost. The amount spent on that good could be a $1 though producers could be better off if they received more than the $1 initially spent. The politician’s calculation of the social benefit for space exploration sets a bad economic precedent.  Because his poor mathematical calculations could cause economic strangulation, the measure must be reversed or else the results could be catastrophic and financially burdening for the state coffers and taxpayers. When total social benefit equals total social cost, we could expect negative gain and no loss. The efficiency of a provision can be realized when there is equality of marginal social benefit and marginal social cost.

References

Hyman, D.N. (2011).Public finance: A contemporary application of theory to policy. Thousand Oaks, CA: Sage Publications, Inc.

Government Spending

Spending in American politics has been profoundly debated over and over again continuously by members of the two political parties, by educational institutions, and by the general public and to this day no credible consensus has been reached to allow for permanent settlement not only for the present but for posterity. Because of the changing dynamics of political leadership, economic mishaps and miscalculations, economic instability, and global economic distress, American spending is never guaranteed as changes can occur at anytime.

The politics of spending has created differing views and ideas in government and in civil society such that two opposing forces have emerged: advocates who are for spending and those who are against it. Such disagreements have led to political entanglements that run for a period of time until a delicate solution that does not hold for long is reached. An example of political differences in spending is the current fiscal cliff talks between the two political parties, Republican and Democratic.

There are those advocates who are opposed to more spending on education, social welfare, defense, and many other sectors of government. On the other hand, there are the advocates who believe in increased spending because they are of the opinion that society will benefit and the economy will be boosted. There are those advocates who are against spending on social welfare programs such as Food Stamps. They feel such spending will benefit free riders who enjoy the fruits labored by others. A free rider is someone who enjoys the benefits of a public good without contributing anything in return (Hyman, 2011).  However, it benefits a section of society who may be feeble, unemployed, and helpless. When public good is voluntarily contributed it equals the marginal benefit of the public good. Those opposed to more spending feel government is less concerned with market equilibrium and that government overspending damages or alters economic stability. Advocates of spending believe for public goods to be effectively delivered, compulsory payments must be financed by communities. Financing of public goods, as advocates of spending believe, has to be generated from taxation or through other sources of revenue.

References

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Thousand Oaks, CA: Sage Publications, Inc.

Privatization and Government Sale of Big Corporations

There are three logical arguments that have been given regarding support for privatization: smaller government, operating efficiency and response to clients, and cash (Mikesell, 2011). People in favor of smaller government and those opposed to the meddling or involvement of bureaucrats usually side with the concept of privatization. Privatization increases efficiency and lowers production costs; private companies respond to customer demands faster than the government; and private companies are known for improved responsiveness to customers. When the U.S. sold Conrail, it allowed citizens to buy shares and make more efforts to increase productivity, make significant gains financially, and encourage competition. When the former Prime Minister Margaret Thatcher privatized British Airways (BA), there have been public outcries mainly because people were not familiar with the concept of privatization or lacked general knowledge on the significance of private enterprises. According to Eckel, Eckel, and Singal (1997), U.S. stocks fell by 17% after BA was privatized. Airlines that were within the European rim and who were in competition with BA for air superiority, experienced drastic drops in their stocks than airlines based in far away lands (Eckel, Eckel, & Singal, 1997).

British Airways was born after the passing of the Civil Aviation Act of 1971. It was privatized in 1987. Despite the sluggish financial growth and poor performances at its initial privatization endeavor, the airline came to be a symbol of growth, changes, and subsidies. Leaving business to people espousing higher degree of knowledge in business operations and experience coupled with freedom to make decisions without government interference, allows for increased financial growth and worker productivity. The main reason the British government privatized BA was to generate additional sources of revenue for the government and also make the firm more efficient (Eckel, Eckel, & Singal, 1997). In the same case, the U.S. privatized Conrail, the French its Banks, and the British its telephone services to generate more revenue and ensure the existence of well organized private enterprises that would deliver efficient services to the public.

The believe that private companies outperform governments has been refuted by Mikesell (2011) who bases his reasoning on the difficulties faced by the Internal Revenue Service (IRS) when collecting taxes from contractors that have been created by Congress. Governments advertise the sale of companies knowing there will always be a buyer. When governments sell companies, they are assured that the operating costs they incurred will disappear and be taken over by the buyer. There have been cases of revenue loss in the former Soviet Union after states that separated from it tried to move to the market economy system. Initially, state enterprises in the former USSR had high production costs even with private ownerships. With the exception of the energy sector such as oil and gas whose values skyrocketed, many privately owned Soviet companies could not be sold at the national and international markets as prices were too insufficient to cover the costs of operations. Private companies, without regulatory measures, imposed on them, can send bad precedents and can be dangerous to many business operation procedures.

Privatizing companies that are short of experienced personnel may not be a good idea as doing so could slow down flexibility of operations and productivity, retard implementation programs, and hold back innovation. On the part of production/provision of services, there is the belief that governments should not continue operating companies that collapse as a result of government failures. If the government fails to deliver products and services, it is logical to use private companies to do the job and continue providing services. According to Megginson and Netter (2001), privatization started with the rise of Margaret Thatcher in the 80s. In its initial rise, privatization received strong skepticism from the public and even from economists. However, despite the cynicisms, privatization has grown roots everywhere and has been adapted by over 100 countries worldwide (Meggison & Netter, 2001). Those who continue to be skeptical of privatization cite selection bias as the major reason for their opposition. There are three forms of privatization: delegation, divestment and displacement (Savas, 2001). Delegation, also called partial privatization, implies continuous government involvement. Divestment is the shedding of an enterprise, asset, or function and requires a one-time government involvement. Displacement, a form of privatization that appears as stealth or by attrition, is a commonplace privatization and is usually seen when government delivery of public goods is seen inefficient by the public such that private enterprises take over the unmet services.

References

Eckel, C., Eckel, D., & Singal, V. (1997). Privatization and efficiency: Industry effects of the sale of British Airways. Journal of Financial Economics, 43, 275-298.

Megginson, W.L. & Netter, J.M. (2001). From State to market: A Survey of empirical studies on privatization. Journal of Economic Literature, Vol. XXXIX, 321–389.

Mikesell, J.L. (2011). Fiscal administration: Analysis and applications for the public sector (8^th ed.). Boston, MA: South-Western, Cengage Learning.

Savas, E.S. (2001). Privatization and public-private partnerships. Chatham House, NJ: Chatham House. Retrieved from http://www.cesmadrid.es/documentos/sem200601_md02_in.pdf

Taxation and Pareto Optimality

In most democratic institutions, taxation has often garnered heated political debates among political stalwarts simply because each party would like to see the final results to be in its favor. Since American proclamation of independence in 1776, the history of taxation has remained an issue of contention and debate such that the topic has become the most important subject of discussion. Governments are obliged to enact taxes by raising revenue and that revenue is one that comes from the pockets of citizens.

Buyers and sellers find it problematic and unbearable when a good is taxed by the government. Because tax on a commodity affects price and quantity, it is the forces of supply and demand that share the burden of taxation. Depending on the amount of taxation, levying a tax on buyers sends the demand curve downwards.  Thus, taxation undermines the financial capability of buyers and sellers.

Akin to the concept of efficiency, Pareto optimality was coined or developed by an Italian economist by the name Vilfredo Pareto (1848-1923). Efficiency appears in various definitions though its precise meaning is when one experiences the desirable effect of a product while using minimum effort or expense. Efficiency is best realized when conducted in a manner that is reciprocally profitable.

 According to Stiglitz (1987), beginning in the 1930s, a tremendous waning of taxation was experienced after the advent of the new welfare economics. Due to imperfection of information on the part of the government, taxation becomes distortionary. Trade-off leads to equity and efficiency. According to Hyman (2011) there is freedom associated with advantageous exchanges. This in turn elevates the aspect of efficiency and mutual gains. 

Building a Park Financed by an Increase in the Local Property Tax

Building a park that is financed by an increase in local property tax may not be a bad idea as it benefits the public that surrounds it. Children will come and play, parents and relatives will feel relief from work and home related stress by just sitting on the grass and the benches or making a walk through the woods, while a section of society would gather around to commemorate special occasions. However, as per the Pareto efficiency, because the park will benefit a few as many may not have the time for leisure, we could assume that many of the home owners who foot the tax will become financially burdened. Therefore, constructing a park through increase in local property tax is not Pareto Efficiency.

Building a Park Financed by a Rich philanthropist

It is a good gesture when a philanthropist builds a park for his community. The philanthropist is displaying generosity and care for fellow citizens who are in need of a place to relax during their spare times. People living around the park will not be affected financially since they don’t have to pay tax on the land and the newly constructed park. Likewise, the city will not be subjected to financial constraints and that its coffers will not be affected by the construction of the park. Thus, it could be argued that the park project is a case of Pareto Improvement. 

Lung Cancer Financed out of General Revenues.

Financing lung cancer can be a good initiative because many who suffer from lung cancer will get medical attention and the companies that manufacture lung cancer medication will increase production. Establishing a lung cancer institution means many sufferers will get treatment while those who don’t recover will still get the right attention. New doctors and nurses will be hired and dispatched to the facility. Jobs will be created and there will be supply and demand. So, this is Pareto Improvement.

Medical Care Facilities for Lung Cancer Financed by Cigarette Tax

I think we will not see Pareto Efficiency by building more medical care facilities through cigarette taxation. While the smoker will be affected by the taxation, the medical care facilities will create more opportunities for society and that unemployment will drop. To attain Pareto Efficiency, everyone in society must benefit from the medical care facilities. Unfortunately, it is the smoker who will be left financially burdened by the taxation.

References

Stiglitz, J.E. (1987). Pareto efficient and optimal taxation and the new new welfare economics. Working Paper No. 2189. Cambridge, MA: National Bureau of Economic Research.

Hyman, D.N. (2011). Public finance: A contemporary application of theory and policy. Thousand Oaks, CA: Sage Publications, Inc.

Tax Expenditure

Tax expenditure is defined as when the taxpayer pays taxes that would be owed without special provision while in return receiving a government funding equivalent to the sum of tax in that provision. Direct expenditure and tax expenditure could be taken to mean the same as both provide benefits to the recipient. However, the two carry different connotations from a political perspective. Two tools for adding transparency are the tax expenditure budget and the tax expenditure concept.

Medicine: Citizens pay taxes to state and federal governments so as to get medical attention when time of need arises. The government collects taxes from individual citizens to ensure the said citizen is well cared for until a certain age. Citizens become recipients of the taxes they pay to the government. Subsidies to the poor, unemployment insurance, and security pensions are some of the provisions that benefit individual taxpayers. Despite receiving medicine for upkeep of the individual health, taxation strains the recipient’s finances.

• Tax Expenditure: Employees choosing medical deductions may receive services through their employers. Deductions, according to the payment arrangements of the employer, may be taken from employee’s wages to cover for medical expenses when the employee visits his doctor of choice or designated healthcare provider.

• Conventional Government Expenditure: This system of arrangement is the prerogative of the government where individuals such as seniors and the disabled receive medical attention through the Medicare program implemented by the government. Medicare is a program for seniors over the age of 65 and for some disabled workers (Hyman, 2011). Medicare is composed of Part A and Part B. Part A is financed by workers payroll taxes and their employers. Part B of Medicare is paid by premiums paid by those covered by the program and by government revenues. Any excess fund is invested in the U.S. Securities to gain interest.

Housing: Governments collect taxes from house owners and property developers to boost their economies. The same tax collected may be used to cover loopholes and finance strategic projects that are vital to the economy and the running of the nation. However, there are property tax relief mechanisms such as exemptions, credits, and abatement provided by governments to give relief to residential property owners burdened by economic strangulation and poor market economy.

• Tax Expenditure: Any nation that does not control its tax expenditure may be headed for the wrong tax policies that could eventually create economic imbalances and fiscal disadvantage. A portion of the taxes collected from housing properties may be refunded to house owners to allow them gain economic stability and economic confidence. 

• Conventional Government Expenditure: An example of this form of program is the Housing Authority and Section 8 Vouchers that help the poor to have a roof over their heads. States struggle to ensure everyone has convenient housing regardless of size or arrangement. Almost every state, county, or local government has a Housing Authority and Section 8 program.

Education: Education is vital to the health of a nation. An educated nation has a better chance of developing and emerging above others as a decision maker in the community of nations. Nations that boost their educational institutions have a better prospect of containing other nations through their educational expertise. An example of a nation that is a leader in global perspectives is the United States-the most advanced nation on earth.

• Tax Expenditure: Students get education tax relief to enable them accomplish their educational goals and play significant role in the advancement of the political, social, and economic advancement of their nation upon completion of their education. Giving students tax breaks allows their parents and other guardians to concentrate on issues that may be beneficial to their families and their country.

• Conventional Government Expenditure: In this form of expenditure eligible students receive government financial incentives that come in the form of financial aid, scholarships, and grants, subsidized and unsubsidized loans. Students may choose to continue paying accrued interest on their loans while in school or they may put on hold loan payments until they complete their education. In this program, the government imposes significant percentage of taxation on student loans.

References

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Thousand Oaks, CA: South-Western Cengage Learning.

Voting and Democracy

Voting plays a significant place in the formulation of institutions of governance, the expansion or contraction of government, and the election of representatives at the federal, state, and local government levels. This voting system is profoundly practiced in nations that exercise democracy as their mode of governance. In authoritarian and some monarchical systems, citizens have no right to choose their governments of choice. While democracy is finding place in many parts of the world, still, many nations that call themselves democratic, fall under the pseudo-democracy category where the democratic form in practice is imperfect and short of the hallmarks required of a real democracy.

In our modern world, nations in North America, Western Europe, and Australia may be referred to as modern democracies. However, due to human negligence, self-interests, corrupt bureaucracy and malfeasance practiced by the governing hierarchy, and poor governance on the part of elected representatives, even modern democracies at times fall under the categorization of pseudo-democracy. According to Hyman (2011), individual voters are usually allowed one vote when making public choices during election time. In politics, proposals are usually approved through the simple majority rule. People vote by looking at the benefits associated with a product and those who choose to vote anticipate benefits to be reaped from what they vote for. Some who are of voting age may choose not to vote if they perceive nothing beneficial and no specific attachment to the political exercise. 

Voting is a vital tool or implement for those of voting age. They can use their votes to defend their voting rights, national sovereignty, and integrity and decide on the best selection of goods and services that will shape their future. By partaking in policy formulations, voters can reach unanimous decisions to forge a better future for themselves and for future generations. People vote in order to make a difference in their lives and in the lives of fellow citizens.

Forming groups or associations may be detrimental to the smooth running of a nation or it may yield significant progress that elevates the living conditions of millions who may be struggling for survival or finding means to make ends meet. Fighting in unison such as voting for a cause is a democratic undertaking that eventually reaps fruits if voting is exercised in a civil and thoughtful manner. People vote on a number of issues such as the changing of ineffective representatives, distribution of public goods and services, taxation, and other salient issues that affect their daily lives.

According to Hyman (2011), there is the belief that is exclusive to quite rational people, that voting may not make a difference in their living conditions. Choosing not to vote may not likely change an election outcome. It is not rational to vote if benefits of voting are close to zero even if the expected benefits are positive such as to influence outcomes. Voter turnouts are usually not professional as experienced during the 2006 congressional when voter turnout was 37.1% while the election between the two heavyweight presidential contenders, John McCain and Barack Obama, climbed to 56.8% among people of voting age.

People tend to vote by looking at the benefits they expect to reap from voting on certain burning issues or worthy factors such as the delivery of public goods and services and the advancement of social change. If they think they will benefit by voting for a certain representative, they could be seen voting in groups. Interest groups are people driven by collective needs and aspirations. The Western world has seen the proliferation of interest groups who lobby representatives to ensure their common needs are addressed collectively. Election financiers also play a great role in how government should be crafted and managed. They spend millions of dollars to have their prospective representatives ushered into office so they can drive their needs.

In the American system, it is the elected institutions that are responsible for deciding the supply of goods. Public goods and services are best managed when supplied in an equitable and efficient manner. Efficiency ensures public goods reach their destinations and everyone gets a fair share. People vote for various reasons and the most important ones being affiliation to political party, the time and effort available, and the belief in the political system. Unlike in many parts of the world where political parties usually seem to be bloated and out of proportion, in the United States, it is only the Democratic and Republican parties that attract greater attention among voters as they tend to be the only two parties that shine in the limelight of political dispensation.

As argued by Hyman (2011), candidates who follow extreme positions in politics often find themselves off the edge and losing elections. I do concur with Hyman’s arguments because many political leaders who followed extreme political routes found themselves trounced for being too inclined to political ideals that were out of the ordinary and not in line with modern voter demands. The loss of seats in an assembly also puts a political party at a dangerous edge where their representative power either in the Senate or the House may diminish and loss credibility especially when voting on contentious issues that attract party followers such as the citizens who look to the party for political dispensations and general representation.

According to Mikesell (2011), individuals in society make the best decisions that shape their lives while philosopher-kings and dictators may accurately make determinations that bar others from doing what is befitting their living conditions. According to the Pareto criterion, if one person may feel better off as a result of an action by a policy, then society in general will be better off in regards to that policy implementation (Mikesell, 2011).

To the contrary, such action may not benefit society as a whole because the number that are unaffected by that policy implementation cannot be verified scientifically when making a comparison of those who benefited. Because parties are seekers of votes, they are not necessarily units of principles or ideals. Because parties are unaware what voters want, likewise, citizens are oblivious to what government has done or is doing (Mikesell, 2011). In a world of imperfect knowledge, governments do not treat all citizens equally. There are those citizens who are given preference by the government over others because they influence government actions.

Firstly, people tend to vote using the one person one vote slogan though such actions do not necessarily represent political influence for the most part, well. Secondly, people who see themselves as specialists will emerge as people’s representatives and convince the government that the policies they embody will directly benefit them and their supporters as well. In due cause, the government will filter the provided information and treat them as data. Any government that is rational in context will discount such claims by representative forces though it will not ignore them altogether. According to Mikesell (2011), imperfect information is cause for bribery and corruption scandals. Parties apply every possible means to garner support and stay in power and this is more widespread during elections.

Grassroots lobbying which is the mobilization of constituents to act on causes that are exclusive to select groups have been known to influence political representatives by communicating through the use or application of phone calls, e-mails, letters, and faxes (Mikesell, 2011). Since all votes have equal weights, trading votes is an important factor in the process of representation. Legislators control the supply of goods through logrolling which can lead to the production of wasteful spending, through special interest groups, and the use of the majority rule.

References

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Mason, OH: South-Western, Cengage Learning.

Mikesell, J.L. (2011). Fiscal administration: Analysis and applications for the public sector (2^nd ed.). Boston, MA: Wadsworth, Cengage Learning.