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Summary of the Article
Changes in the government policies are the driving force behind the society’s change in the volume, composition and location of their income. For instance, businesses and people have been noted to change the location of their income on the basis of tax rates and incentives.
According to a report by the U.S Treasury in 2004, the receipt of wages and bonuses was accelerated between 1992 and 1993 by the taxpayers who received a high income. This was as a result of an anticipated hike in tax from 31% to 39% (Arthur 1). The same happened in the following year due to the expected increase in Medicare taxes.
From then, the tax rates in the U.S have been noted to be increasing in almost all sectors of the economy from the income taxes, health care taxes to the state and local taxes just to mention a few. However, if this trend continues to surpass the tax boundary, then there is a possibility of experiencing a recession in 2011.
In this article, Arthur Laffer, warns on the trend on the taxation rates in the United States. Given the trend, he foresees a recession taking place in 2011 if at all action is not taken. This is because, people normally make their income decisions based on the tax rates imposed by the government.
Therefore, in case of high tax rates imposed, people will be forced to relocate their businesses in other regions of the world where the tax rates are reasonable.
If this happens, the economy of United States will be greatly affected. This happens because the profits of any business enterprise and corporations are considered as a share in the Gross Domestic Product of the state (Arthur 1). Thus, if the businesses are to relocate to other regions, their profits will be incurred in those regions and not in the U. S hence a fall in the Gross Domestic Product.
The contributions made by Arthur Laffer in this article are worth appraisal. By giving his side of story on the tax related issue, he not only informs the general public of the state’s economic position but also provokes the government’s intervention on the same. He does this by comparing the current economic situation of America with the position it was during former presidents such as Ronald Reagan which he notes that Reagan’s actions are a mirror images of the current president Barack Obama.
This article shows one of the factors that affect the economy of a state and how these factors could lead to economic problems such as recessions.
The information in this article is applicable in almost all sectors of the economy because of the mare fact that tax is inevitable. From the consumer to the producer to the state, all have a share to contribute in form of taxation. Therefore, being informed of matters related to taxation has many advantages to all stakeholders. For one, the government is alerted to take precautionary actions and entrepreneurs informed of the danger ahead, while the consumers are informed of the economic position of their state.
From the above discussion it is clear that this article is of great benefit to the entire society which is made up of the taxpayers. It is also a great contribution to the macroeconomics course since taxation is an everyday activity.
Laffer, Arthur. “Tax Hikes and the 2011 Economic Collapse”. Wall Street Journal. Sunday, June 6, 2010. Print.