Rivalrous and Non-rivalrous Goods

The central government provides various public services to cover public needs. Non-rivalrous and non-excludable, public goods include environmental protection, water, education, defense, roads and bridges, light houses and street lighting. Everyone in society benefits from public goods and services provided by the government. The national defense of a nation is one example of public good provided by the central government where every citizen benefits from the protection provided by that nation’s armed forces from all sorts of outside aggression. It would be wasted efforts to allow state governments to oversee the running of our national defense operations. A ship plying a certain maritime area may not be able to obstruct other ships from using a single lighthouse that is open to all ships. On the other hand, a national defense perimeter in New York may not be available to other cities say, like the City of San Francisco, because there may be no need for such security arrangements. According to Hyman (2011), goods such as national defense cannot be sold in the markets to individual consumers for exclusive benefit.

Unlike private goods that are rivalrous and excludable, public goods are goods that are open to everyone. Everyone in the vicinity of a lake can enjoy the use of the lake without interruptions. While the government finances public goods through taxes collected from the public, it cannot at the same time charge fees for the citizen’s use of public goods such as national defense that is committed to the security and protection of the nation, social welfare programs that provide care to the elderly and the poor, and public education that is exclusively geared toward providing universal education.  There is congestion costs associated with the use of public goods such as when there is an increase in the number of users that reduces benefits to each user. When a scenic overlook area is congested, a negative congestion externality arises meaning some of the public viewers may not get the chance to see what is being viewed. The case of national defense best describes the most efficient public service provided by the central government.

References

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

Tax Levying

Taxes levied by the government should not discourage work in any way and there should be little distortion as tax should be distributed fairly. Since the 1986 tax reform, there have been more than 1,500 changes to the tax code (Mankiw, 2009). It has been generally agreed that equity and efficiency are the two most important goals that drive the tax system. In the past, the major revenue for construction of highways and bridges came from gasoline taxes but because of inflation and enhanced fuel efficiency, there has been a drop in the effectiveness of the gas tax (Vincent, 2007). Such problems have led to states to finding unconventional funding for highway construction. In the states of California and Virginia, city planners and government officials foresee public-private partnerships as the best way to finance highway construction. This is done to advance efficiency and equity since public-private partnership in highway construction rests on two ideals: (1) that tapping private equity will increase the needed capital in the private sector and that (2) there is the belief that the private sector is more steadfast and competent than its public counterpart.

Economists have often referred to alcohol and tobacco taxes as Pigovian taxes, named after Arthur Pigou (1877-1959), because of the negative effects the two have on the human health or society at large. Corrective taxes are usually imposed by the government to discourage society from consuming alcohol and cigarettes to socially optimum level. Other than alcohol and cigarettes, corrective taxes may also apply to soda and to other activities such as vehicle exhaust emissions that are deemed to cause pollution. Usually, the government will tax activities that have negative externalities and subsidize activities showing signs of positive externalities. The Environmental Protection Agency (EPA) is responsible for overseeing activities that cause harm to the environment. Governments impose corrective taxes on gasoline tax because of the need to reduce congestion, accidents, and environmental pollution.

Property owners pay property taxes at a given time frame or a given period every year. They fall under the corrective tax category. Since vehicle owners operate machinery that causes damage to the highways, imposing corrective taxes to repair or construct highways will be to their advantage. Education, social welfare, and highways received the biggest share of spending by local governments for the year 2005 (Mankiw, 2009). A tax benefit is like installing an energy efficient system in your home which in turn reduces energy consumption for a limited period. A tax benefit could be distortionary and have unintended consequences. An example of a distortionary tax is biodiesel which costs more to produce than the regular petroleum diesel. Modifications could be made to tax collection system and amount if they deemed beneficial to society.

References

Mankiw, N.G. (2009). Principles of Macroeconomics (5h ed.). Mason, OH: South-Western, Cengage Learning.

Vincent, K. (2007). Public private partnerships in highway infrastructure. Conference Papers-Western Political Science Association. Retrieved fromhttp://ehis.ebscohost.com.ezp.waldenulibrary.org/ehost/pdfviewer/pdfviewer?sid=3778a080-1f0b-4ced-94b0-73c1197a72ee%40sessionmgr115&vid=2&hid=102 

U.S. Taxation System

Taxation comes in various forms and applied in different ways. Differences in taxable income and comprehensive income are referred to as tax preferences in the U.S. income tax code. Tax preference is justified on the grounds that it poses administrative difficulties on certain activities, that it improves equity, and that it encourages private expenditures that generate external benefits (Hyman, 2011). Income tax application depends on the size of the family and tax base is justified in terms of equity considerations. A family with many children may pay less tax than the family with the same income but fewer children. Due to the growing elderly population in the next twenty years, much has changed in how seniors are taxed by states (2008). Tax preferences for the elderly have resulted in growing competition between states to attract more seniors. The desire to lower taxes for the elderly is based on the desire to help a needy aging population who are confounded by skyrocketing medical bills, diminished work, unaffordable clothing, and relatively high food prices.

 The U.S. administrative system is different from the type of administrations seen in Western European countries in that, in the United Sates, states enjoy a degree of freedom in their ability to deliver economic policies that they deem attractive and beneficial to their state inhabitants (Klemm, 2009). Excess burden of tax preferences can lead to distortions in ways that lead to efficiency losses in markets (Hyman, 2011). There are various types of tax preferences in the U.S. income tax system. They include income in-kind and imputed housing rental income and miscellaneous exclusions and adjustments. It is difficult to measure income in-kind like do-it-yourself activities. Since there are no market transactions in houses occupied by owners and that they rent to themselves, they escape taxation. In fringe benefits, workers are excluded from taxation in salaries and wages. An employer contribution to an employee’s insurance is also excluded from gross income. A transfer by government to individuals is also excluded from gross income.

Looking at the phaseouts of deductions, exemptions, and credits and personal incomes of individual taxpayers, we see that those with the highest incomes paid between 35 and 36 percent of MTR in 2005 (Hyman, 2005). Education tax breaks instituted in the U.S. beginning 1990s, according to LaLumia (2012), tended to help the middle income. On the other hand, students from poor backgrounds benefited little from Pell Grants. Some states such as Alaska, Florida, and Washington, among others, depend on personal tax as a source of revenue (Hyman, 2011). States collect taxes in various forms with some applying flat-rate proportional structures while others limit state income taxation to interest income and dividends only. The problem with taxation is that it disrupts the financial stability of high wage earners who suffer increased taxation as their income rises.

Americans enjoy economic advantage over other countries because they work harder and put more hours to work. When Ronald Reagan was contesting the presidency in 1980, he promised to cut taxes. Reagan’s argument was based on the assumption that taxes were so high that people were discouraged from working harder (Mankiw, 2009). While some economics call for overall tax cuts, there is the belief that some taxpayers may be affected adversely and find themselves on the wrong side. I think it would be prudent to keep tax preferences the way they are at present.

Conway, K.S. & Rork, J.C. (2008). Income tax preferences for the elderly. Public Finance Review, 36 (5), 523-562. doi: 10.1177/1091142108316441

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

Klemm, D. (2009). Flexible local economic development - lessons from the United States. Local Economy, 24 (5), 426–432. doi: 10.1080/02690940903138194

LaLumia, S. (2012). Tax preferences for higher education and adult college enrollments. National Tax Journal, 65 (1), 59–90.

Mankiw, N.G. (2009). Principles of macroeconomics (5^th ed.). Mason, OH: South-Western, Cengage Learning.

In-Kind Benefits

In-kind benefits are goods and services provided by the government to needy individuals and families. Caring for the needy and giving them the chance to live decent lives should be a government priority. When the poor and most vulnerable get protection from the government, society will feel energized and united collectively and crime and lawlessness will decline. The political concept of communism failed mainly due to the lack of coherence and the marshaling of unworkable economic programs such as collectivization that abused individual and labor force in the former Soviet Union. Under strongman Joseph Stalin (1878-1953), life in the former Soviet Union was unbearable for millions. Non-social cash benefits or privileges have been in use in Russia for sometime until beginning 2004 when social unrest became widespread due to government changes in social benefits (Alexandrova & Struyk, 2009). Helping the poor is a good act and a public good.

Programs like Food Stamps and Women, Infants, and Children (WIC) are provided to people in need. In-kind benefits repel violence and crime, malnourishment and food shortages among the poor who may either be disadvantaged, helpless, unemployed, disabled, or stranded wayfarers. Besides the United States, in-kind benefits are available in many democratic countries such as the United Kingdom, Sweden, England, Finland, Denmark, Norway, Germany, and many other democratic countries including Canada, Australia and New Zealand. In poor undemocratic countries, governments mobilize the international community mainly when there is an epidemic or when there is massive drought that decimates human and animal lives. Russia’s use of cash benefits to care for the disabled and the elderly brought about inefficiencies in the labor market, reduction of retirement age in communist countries, and welfare traps instead of stimulating the labor market (Alexandrova & Struyk, 2009).

Since it is hard to govern a hungry population, governments have a responsibility to ensure goods and services are delivered even to the most impenetrable, out-of-reach locations by contracting philanthropic institutions and religious organizations. The fight against hunger should be every caring government’s main concern. The in-kind benefits that are open to the needy include canned, dry, and cold foods, and fruits and vegetables that can be bought from grocery and outlet stores, mega stores, or city markets that are usually open to the public on weekends and have contractual agreements with the government. Purchases can be made with state or federal government issued vouchers. According to Hyman (2011), assistance to the poor has been found to attract political attention mainly when a particular issue is being voted on.

While it is a humanitarian gesture for a government to care for the needy, cases of abuse of goods and services abound in almost every state, locality, or municipality. Corrupt in-kind benefits recipients at times entice grocery owners to transform the vouchers into cash. In such cases, the grocery store owner demands extra interest payments for the services rendered. Thus, if an in-kind benefit recipient receives $100 from a grocery owner, in return, he or she will have to add an extra $20 when making repayment. To overcome fraud of this magnitude, state agencies employ tactics that infiltrate fraudsters leading to many arrests. Magistrates or judges handling such cases often take drastic judicial actions that include heavy fines, cancellation of in-kind benefits transactions, and closure of businesses.

In-kind benefits are more prevalent than cash benefits because of the fear of alcoholism and drug dependency. If recipients are given cash instead of the in-kind benefits, beneficiaries may not purchase food as expected by the state or government. However, there are those who are in favor of cash benefits because of their belief in stabilizing the economy. Lowering unemployment and putting more people to work will bring down dependency on in-kind cash benefits to the able-bodied beneficiaries.

References

Alexandrova, A. & Struyk, R. (2009). Reform of in-kind benefits in Russia: High cost for a small gain. Journal of European Social Policy, 17(2): 153–166. doi: 10.1177/0958928707075204.

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

Poverty and Income Redistribution

The United States is considered to be the wealthiest nation on earth, yet, a look at the number of people who are poor or homeless reveal startling figures. In almost every state of the U.S., the number of people who are considered poor or living below the poverty line creates apprehension and worry for the caring philanthropist, concerned economist, and the politically dedicated state or federal representative. According to Hyman (2011), the distribution of income is considered a public good. People who stand up for the rights of the poor especially those who are in support of government redistribution of resources believe that they will also benefit from the redistribution of income since poverty will be reduced with the implementation of such measures.

Compassion for the poor who may not cater for themselves due to impecuniousness is one factor that gives satisfaction and esteem to the section of society driven by human care and devotion. Elevating the living condition of a citizen also allows the other capable, self-sufficient citizen to overcome social instability and radical commotion. People tend to prefer government distribution of public goods over private charities because of the fear of voluntary donations running dry or resulting in under-supply in income redistribution. Poverty, no matter how affluent is, is hard to eradicate. Poverty is a natural phenomenon that is visible in every nation in the world, including the wealthiest of all nations such as the U.S. and Western European nations.

The Clinton Global Initiative (CGI) was founded in 2005 by Bill Clinton, the former President of the United States, with the soul aim of eradicating poverty globally-an initiative that has not achieved the goals and expectations it was formed to accomplish. CGI convenes annually often attracting over 150 world leaders, Nobel laureates, stars and celebrities, and selected personalities known to have passion for eradicating poverty from the face of the earth (CGI, 2013). However, the commitments of CGI and other global initiatives for the eradication of hunger have been beset by natural disasters and other calamities including global economic meltdowns, tsunamis, climate changes, deliberate environmental degradation  dictatorship and poor governance, drought and locust invasions, cyclones and hurricanes, and other natural and man-made and disasters that wreck havoc on human progress.

In the United States, programs usually undergo cost-benefit analysis to analyze their effectiveness. By clumping together various programs, in what is known as intermix, it becomes easier to save revenue and create efficiency. This helps alleviate mismanagement and loss of revenue. Many people believe that assisting the poor is a moral and religious obligation and that the giver has always remained “Samaritan” since time immemorial. According to Weiner, Osborne, and Rudolph (2010), poverty has been given various classifications and so are its perceived causes. From individualistic perspective, the causes of poverty is attributed to poor money management, alcoholism and drug abuse, physical handicap and maladies, laziness and failure to secure employment, the absence of self-improvement, and living idle life. On the social causes of poverty, the researchers attribute poverty to elevated taxation, society’s failure to deliver goods and services, lack of employment opportunities, discrimination and prejudice, and low wages (Weiner, Osborne, and Rudolph, 2010). On the side of fate, they attribute causes of poverty to bad luck.

Besides the classifications given above, Weiner, Osborne, and Rudolph (2010) claim that the elderly may be susceptible to poverty due to their advanced ages that deny them immunity from disease; immigrants often plunge into poverty due to lack of communication skills; while recipients of welfare benefits judgmentally are perceived as lazy and inactive. The number of people who are classified as being poor was estimated at 39.8 million in 2008 which corresponds to 13.2% of the entire U.S. population (Hyman, 2008).

It is mindboggling that a nation such as the United States that is endowed with enormous economic benefits should have such a startling figure. Government encouragement of the poor to seek employment has never produced significant results other than “welfare traps” where people become dependent on government assistance for prolonged periods. 

According to Hyman (2011) previous studies have discovered that after welfare recipients return to work and relinquish their reliance on government assistance, their total disposable incomes diminish drastically leading to a drop in their leisurely activities and sustenance. When the income of a household dwindles such that they fail to secure “nutritionally adequate diet”, they are classified as poor.

According Guetzkow (2010), policy makers are to blame for the rising poverty in the United States. Prior to 1996, the current Temporary Assistance to Needy Families had a different name altogether. It was known by the acronym PRWORA which implied Personal Responsibility and Work Opportunity Reconciliation Act. Because policy makers did not explicitly claim that recipients were unworthy of receiving help, instead, they maintained that the safety net system that was in place was overly generous to welfare recipients. Researchers give various reasons for the causes of poverty. For Weiner, Osborne, and Rudolph (2010), political ideology has a hand in the proliferation and acceleration of poverty in the United States. The authors contend that some of the underlying factors related to poverty in the U.S. include poor education and biased government policies.

There is the belief among scholars that poverty is correlated with race. Without even looking into the African continent that constitutes fifty-three independent states where there are big disparities in income distribution and where poverty is the hallmark of every nation, a glimpse at American demographic income distribution is enough to draw the racial dividing line. According to Mankiw (2009), U.S. demographic statistics reveal that people classified as Hispanics and African-American are three times more likely to show signs of poverty than Whites. On the other hand, poverty is associated with the size or composition of households. Married couples have a better chance of evading poverty than the single adult female with children. According to Mankiw (2009), poverty among the elderly is not overblown because of the subsidies and social security that safeguard their lives during their lifetimes. In the U.S., there has been decreased income mobility in recent years due to economic decline leading to transitory variations in income. Climbing the ladder of success, according to Mankiw (2009) depends on how hard someone works.

The issue of income inequality has been significantly debated in various political discourses by people having dissimilar political philosophies notably utilitarianism, libertarianism, and liberalism. Despite the heated debates and ideological dispensations geared towards the eradication of poverty, in a nutshell, humanity has exhausted all available resources to usher in universal affluence that will benefit humanity for posterity. Regardless of thousands of graduates leaving colleges and universities of high reputations, the prospects of securing decent employment seems to be unattainable and beyond grasp in a global economy suffering from political disasters and economic strangulation.

While liberalism calls for policies that give the government greater command in the selection of policies and evaluation and act as an impartial observer behind a veil, on the other hand, utilitarianism begs for policies that allow governments to maximize the total utility of each and everyone in broader society. Libertarianism, a philosophy that calls for the government to take punitive actions against law breakers and enforce voluntary agreements, is based on the belief that there is no such thing as central distribution. Thus, with differing views on economics and resource distribution, poverty will remain the most difficult issue for policy planners to undertake. Because policy planners hold differing views, eradicating poverty will not materialize for the foreseeable future.

References

CGI (2013). About us: Clinton Global Initiative. Retrieved from http://www.clintonglobalinitiative.org/aboutus/

Guetzkow, J. (2010). Beyond deservingness: Congressional discourse on poverty, 1964−−1996. The ANNALS of the American Academy of Political and Social Science, 629: 173-197. doi: 10.1177/0002716209357404

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

Mankiw, N.G. (2009). Principles of microeconomics (5^th ed.). Mason, OH: South-Western, Cengage Learning.

Weiner, B., Osborne, D. & Rudolph, U. (2010). An attributional analysis of reactions to poverty: The political ideology of the giver and the perceived morality of the receiver. Personality and Social Psychology Review, 15(2), 199–213. doi: 10.1177/1088868310387615.

 

 

 

 

 

 

 

Taxing the Elderly

While taxes are major revenues for the government, it has tremendous impact on buyers and sellers.  According to Hyman (2011), not a single person enjoys paying taxes including the elderly who, after years of toiling, have to grapple with tough living conditions they can’t bear afterwards. It is absolutely hard for a person of advanced age to survive without assistance either from family or friends or from the government. The reason the government imposes taxes on its citizens is to provide revenue for the goods and services it supplies. Taxes collected by the federal and state governments ultimately benefit the taxpayer. Every state in the U.S. has its own way of taxing the elderly (Edward & Wallace, 2004).

One thing that makes the elderly exceptional during their careers is that they have accumulated years of hard work and dedication to their country through continuous payment of taxes for the years they have been deployed in their workplaces. Therefore, upon retirement, they deserve to be given gratitude through tax exemptions. According to Edward and Wallace (2004), almost 43 states give tax relief to the elderly. On the other hand, 39 states give the elderly tax exemptions on their social security incomes. Apart from the social security tax exemptions, another 36 states are known to give additional credits or exemptions to the elderly (Wallace & Edward, 2004).

The equitable and efficient distribution of income to the elderly is noted in the continuous delivery of social security payments by the government for the period they are in retirement or until they depart the world. However, regardless of accumulating substantial amount of taxes for the years they were employed, on the other hand, for some, the social security benefits dished out by the government may not be enough to sustain their living conditions. The lack of means-testing in the social security program makes it hard to measure equity and efficiency in the fields of social security benefits (Wolfe, 1983).

According to Hyman (2011), most nations that profess democracy give exemptions and deductions to select groups of citizens for particular reasons and that equity is a subjective concept applied by economists who are simply ordinary people like anyone else. In the case of high unemployment caused by economic stagnation or global economic meltdown, government inability to collect taxes may undermine elderly social security benefits. Thus, lack of economic growth could spell disaster for the nation’s social security coffers that diminish if the government intentionally covers its raw surpluses. There are misconceptions that social security should be treated differently even though, from Hyman’s (2011) judgment, Social Security is like any other government program and that there is great contention among economists whether Social Security should be allowed to partake in direct investments in the private industry through stocks and bonds.

According to Arawatari and Ono (2011), some countries, despite sharing similar political and economic backgrounds, apply elderly taxation differently with some imposing higher tax rates while others choose lower tax rates. In developed countries, the elderly are regarded as an exceptional class given the long service they rendered their countries, while in other countries, parents depend on their children for care when they attain feeble age regardless of the many years of toiling. When a government cares for its elderly citizens through special programs like Social Security and Medicare, there is a greater chance the elders will stay healthy and seek little help from dependents.

Most elders who receive government benefits are better off in their advanced ages as the equity and efficiency generated from government goods and services allow them to be independent. Thus, they can arrange for safari tours in the Serengeti and Tsavo National Parks in Tanzania and Kenya respectively; they can buy movie tickets online; or they can go on a cruise to the Caribbean, and also visit the massage parlor frequently.

Caring for the elderly with efficiency and equity should be the hallmarks of any government. Elders are a section of society that played its rightful role when they were hale and healthy. After attaining old age, it becomes the responsibility of the government that they get the care and devotion they deserve. Taxing them, such that they become vulnerable to disease and unable to care for themselves is not a good option for any democracy that wishes to see its citizens overcome all conceivable hardships. Taxing the elderly due to stress related with demographic changes, is a big task for the United States and many other European countries and Japan that are witnessing increased elderly populations. 

Despite the decline of the ratio of the working population to supplement retirees, what is required, is the creation of alternative solutions before the dawn of 2030 when the ratio of retirees to employees is expected to plunge to disastrous proportions due in part, to severe financial emergency as experienced by states, at times, when they fail to make credible forecasts into their futures. Longer forecasts allow policy planners to make crucial demographic prognostications and long-term goals that help overcome unexpected huddles that may have administrative, social, political, and economic implications for society as a whole. Making revenue predictions allow policy makers to make adjustments on demographic developments on finances. Thus, it is imperative Social Security implementations be given top priority so that the revenues earmarked for the program is never exhausted anytime. Likewise, federal and state governments will have to work hand in hand to ensure the elderly continue to receive their packages without obstructions as stipulated by law.

Even though long-term predictions on demographic developments on finances are usually not tested against actuals, they can be replaced with short term forecasts while budgetary allocations are being deliberated (Mikesell, 2011). Not taxing the elderly can be a significant tool to achieving efficiency and stability in the general economy. According to Mankiw (2009), every year, the government makes adjustments to Social Security benefits for the elderly to compensate for the rise or increase in prices. This act by the government is commendable and should be encouraged at all costs. If the rise in prices is left unchecked, there could be problems sustaining the living conditions of the elderly whose survival is based on what they are paid by the Social Security Administration.

Taxing the elderly should be different from taxing the young people in the workforce who also draw unemployment benefits as a safety net in case of loss of job. Medicare and Social Security are two vital safety nets that ensure the survival and wellbeing of our elderly generation. The government may rush to impose hefty taxes on the elderly meager earnings when best by financial constraints that limit its ability to continue providing the efficiency and equity required by law. In a nutshell, poor governance and poor economic forecasts can be utterly dangerous for society as a whole. The good thing with the governing institutions of democracy is the elevation of sound rationalism and liberal values. The use of reasoning as a basis of action or rationalism and encompassing liberal philosophical applications are two important elements that have made possible the prolongation of democracy and the ideals of caring for humans in time of need.

Taxing the elderly as a penalty for living longer should be restrained at all cost because, anyone fortunate enough to attain long life, including the living youthful workforce, will one day raise the alarm and demand their fair share of care and human attachment. Making the elderly pay taxes on their Social Security benefits is not equity in anyway and should be discouraged if we are to see a society of elders with the iron will to survive and live longer. 

References

Arawatari, R. & Ono, T. (2011). Retirement and social security: the roles of self-fulfilling

            expectations and educational investments. Economics of Governance, 12(4), 353-383. doi: 10.1007/s10101-011-0099-x

Edwards, B. & Wallace, S. (2004). State income tax treatment of the elderly. Public Budgeting

            and Finance, 24(2), 1-20. doi: 10.1111/j.0275-1100.2004.02402001.x.

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

Mankiw, N.G. (2009). Principles of macroeconomics (5^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: South-Western, Cengage Learning.

Wolfe, J.R. & Cullinan, P.K. (1983). Redistribution within an elderly cohort by the social security retirement program.  Policy Studies Journal, 12(1), 47-61. doi: 10.1111/1541-0072.ep11779936.

Social Security

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.

Information Externalities

Information externalities are many and are part of government policies. To discourage certain products or services that are deemed harmful, governments usually impose taxes such as happened in Canada when that government imposed a federal tax on automobile air conditioners that are cause for fuel consumption (Mikesell, 2011). This federal taxation on automobile pollution is not meant to raise the quality of roadways or embark on new road constructions, but to discourage automobile use by drivers. Externalities usually affect third parties and have been found to have an effect on social and market systems and are well recognized in market research and macro-marketing (Mundt & Houston, 2010). One example of externality is market failure especially when private costs or benefits show difference in social costs or benefits.

Polluting factories cause harm to the environment and to humans inhabiting the surroundings. Thus, if the polluting industrial complex and the residents living the area fail to raise awareness and refuse to pay for the harm caused by the pollution, it becomes an externality. Externalities can either be positive or negative. An example of a positive externality is when a section of society is inoculated against disease such that they are assured of not contracting the disease and as well not infect those who have not been inoculated (Hyman, 2011). An example of a negative externality is the production of paper that may have negative effects on the environment as waste from the production facility may pollute surrounding streams and rivers.

Information Externality

The beginning of 1999 created the explosive dotcom (.com) age. According to Benveniste, jungqvist, Wilhelm, and Yu (2001), it is difficult for pioneering innovators to take the lead in information dissemination as their prospects are diminished by information externalities. Despite dotcom pioneering innovators reigning in the market economy during the initial years of their inception, a tremendous takeover ensued where intermediaries took the mantle of information externality. The ushering of the dotcom age opened many avenues for individuals, nations, societies, and the world at large. What started as a small innovation has benefited entire humanity. Two nations may form a bilateral organization to look into their internal affairs. However, other nations may jump on the bandwagon after seeing the benefit of the newly-founded organization. The transfer of information may impact others negatively or positively.

Information externalities are widespread in the banking and in the mortgage marketing industry. Bankers may only lend money to borrowers they have information about. Someone having poor credit rating may be denied a bank loan or mortgage loan. According to Nakamura (1993), evidence has been found that banks are more likely to turn down loan payments during downturns and they are also more likely to raise their lending requirements when there is a crunch in the market.

As it has been always, there seem to be a form of interaction between economic behavior and information. When there are variations in information, what comes to light is information asymmetry. The person borrowing a loan is more informed about his or her business arrangements than the banker who is loaning him or her, the money, to continue conducting business, while the banker tends to have considerable knowledge of his business arrangements than the one borrowing. The discovery of oil in Uganda in 2006 created competition for oil exploration in several countries in East Africa and the Horn of Africa. Oil was discovered in the Ogaden region in Ethiopia; exploration began in Kenya and Somalia respectively. This succession of oil discoveries and oil exploration is information externality.

Other than contractual rights given to overseas-based engineering firms mainly hailing from the Western Hemisphere and Asia, by far no oil has been extracted from the aforementioned countries. If oil is extracted and overproduction or excessive distribution is not controlled, there could be a negative externality. The government will then be compelled to impose Pigovian permits and taxes to overcome environmental degradation and pollution. While the government compels companies to purchase pollution permits, it is the taxpayer that shoulders the costs of pollution. There is better government for everyone when society is educated and voter education is widespread. When markets produce less than society can consume, there is a positive externality. A government can take remedial measures to overcome externality problems by internalizing the externality. The government may tax goods having negative externalities and subsidize goods showing positive externalities.

The government usually imposes hefty taxes on gasoline mainly because of such problems as pollution, congestion, and accidents. Such action by the government may lead to reduced accidents, less pollution, and controlled congestion. Corrective taxes and pollution have many things in common. Firms buy pollution permits while the same firms pay corrective taxes. Some private solutions to externalities include charities like Sierra Club whose main goal is to protect the environment. Another form of private solution to externalities is when colleges and universities receive payments from alumni, foundations, and corporations (Mankiw, 2009).

Two farmers are neighbors; one grows apples and the other is a beekeeper. The bees pollinate the apple trees so they can grow nutritious apples and produce a bumper harvest. On the other hand, the bees get nectar from the apple trees so they can produce the honey you eat at home and at work. Syrups that help you recuperate when you get sick are made from honey. The two farmers may at times think negatively, with the apple farmer deciding on how many trees to grow and the beekeeper deciding on how many bees to keep. This form of thinking produces negative externality. As a result of the negative thinking, the bee keeper decides to keep few bees and the apple farmer concludes to keep too few trees. Such externalities could be internalized if the beekeeper bought the apple orchard and the apple farmer bought the beehives. What remains is one firm that can be internally externalized. That is why, in modern times, firms are involved in different types of business.

Positive and negative externalities are many. The barking dog of a neighbor poses a negative externality because of the nuisance from the uncontrolled noise. It is the responsibility of the dog owner and the local government to intervene and do something about the negative behavior of the barking dog. Restoring old historic buildings tend to have positive externalities when restored for people to enjoy and take rides. Because people don’t see the significance of old buildings, at times these buildings are left to waste. One way of overcoming this problem is for the local government to give tax breaks to owners of old historical buildings so they can be restored and put to effective use (Mankiw, 2009). Anything having adverse reaction to a bystander becomes a negative externality. An example of a negative externality is fumes released into the air by automobile exhausts. It is a negative externality because bystanders are affected by the smog that is released into the air consequently leading to atmospheric pollution. When a new research in technology is undertaken, it leads to positive externality because many people will benefit from the positive knowledge and results of the research (Mankiw, 2009).

Big companies or conglomerations exploiting natural gas and oil at times give misleading information. Thus, it is crucial governments revise how information is exploited by corporations engaged in natural resource explorations. When Bed, Bath, & Beyond moved into New York’s Sixth District in 1992, many other fashion designers followed suit to make use of the booming economy (Caplin & Leahy, 1998). That is also information externality.

References

Benveniste, L.M., Ljungqvist, A.P., Wilhelm, W.J. & Yu, X. (2001). Evidence of information spillovers in the production of investment banking services. Retrieved from http://archive.nyu.edu/bitstream/2451/26535/2/FIN-01-006.pdf

Caplin, A. & Leahy, J. (1998). Miracle in Sixth District Avenue: Information externalities and search. The Economic Journal, (108), 60-74.

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

Mankiw, N.G. (2009). Principles of Macroeconomics. Mason, OH: South-Western, Cengage Learning.

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

Mundt, J. & Houston, F.S. (2010). Ubiquitous externalities: Characteristics, climate, and implications for post-acquisition behaviors. Journal of Macro-marketing, 30 (3), 254-269 DOI: 10.1177/0276146710372223.

Nakamura, L.I (1993). Information externalities: Why lending may sometimes need a jump start. Business Review. Retrieved from http://www.phil.frb.org/research-and-data/publications/business-review/1993/brjf93ln.pdf

Program Budgeting

Program budgeting is when the government wants to manage budgets and measure the outputs of agencies mainly in quantitative terms. The term discretionary programs are programs such as national defense, housing and education, health, and housing (Hyman, 2011). The arm of government responsible for discussing and possibly amending the budget after the request is received by the president is the Senate and the House of Representatives. Congress passes a budget resolution after members agrees on it. The United States gives a lot of attention to its national security because, when there is security, everyone is better off and people have the freedom to interact and do business without feeling insecure. Fordham (2008) notes that when studying national security, one finds congressional voting as an impediment to foreign policy because members have vested interests that make security issues to be contentious and unattainable. When taking meaningful steps on national security, congressional members use roll-calling to pass meaningful issues. Therefore, member interests are ideologically driven and seem to be the cause of political conflicts.

When program budgeting, the government looks at the cost-effectiveness of national security. When the government intends to look into the cost-effectiveness of its armed forces in terms of armaments, training, deployment, overseas bases, a justification of program spending is effected. According to Hyman (2011), program budgeting has been used in the United States for a limited time and that at the federal level, it was used in the 1960s and 1970s mainly during the Johnson and Carter administrations where during Johnsons’ time it was called “planning-programming-budgeting-system (PPBS) and Carter’s time it was known as “zero-based budgeting” (ZBB). For policy makers, cost-effectiveness implies the trade-offs between various programs and making collective budgeting for similar missions. This is like grouping together various departments that are part of the government ministerial composition. However, there are problems associated with improving resource allocation. Even the Congressional Budget Office (CBO) does not have effective measures for improving resource allocation.

In the case of national security, cost-benefit analysis can be determined by undertaking three crucial steps: enumerating costs and benefits of all proposed projects nationally and internationally, evaluating the costs and benefits in monetary terms, and making a discount of all net future benefits. A cost-benefit tableau could then be drawn to determine the costs and benefits of each program over the years. It is quite difficult to reduce the problem of selecting government implemented goods and services program to straightforward, purposeful decisive factor. Likewise, it is difficult to accurately measure social costs and similarly big differences exist on how to figure out what benefits and costs to include in projects. Perhaps, incorporating the budgetary needs of the national security with a similar agency would bring cost-effectiveness. To get the cost-effectiveness of two programs, it is best to get information on the prices of the two alternative programs. The approval of a program that shows little signs of cost effectiveness may put a stop to the attainment of efficiency by lowering the effectiveness of the other project.

References

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