Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 13 of 36 The Costs of Production Section 2 of 20 … Here we begin looking at a part of economics called industrial organization. We will see of how firms' decisions about prices and quantities depend on the market conditions they face. … Consider the costs at a hypothetical “Caroline's Cookie Factory.” By examining Caroline’s costs, we learn lessons about costs that apply to all firms. The firm owner Caroline buys and hires · mixers, ovens and other equipment · cookie ingredients including flour, sugar, chocolate chips · workers to run the equipment … A possible reason Caroline started her firm was an altruistic desire to provide cookies for others out of love for people and the cookie business. Most likely the main reason Caroline started her business was to make money. Economists assume the goal of a firm is to maximize profit. The amount th...
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Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 22 of 23 … The President’s Advisory Panel On Tax Reform of 2005 Part 2 of 2 Q: What specifically do you propose? A: The Tax Panel endorses two reform proposals, both would · simplify the tax code · improve economic growth · roughly preserve the current distribution of tax burdens · repeal the individual and corporate Alternative Minimum Tax … The first reform proposal is the Simplified Income Tax, which · preserves the income tax framework but cuts marginal rates to 15%, 25% and 33% · provides for a large amount of tax-free saving · consolidates tax credits · rationalizes the system of business taxation The second reform proposal is the Growth and Investment Tax, which · builds on the Simplified Income Tax system · allows full expensing of capital · shifts the tax system toward a consumption tax base … Productivi...
Capitalism Does Not Exploit Workers, Rather Government Does First, watch this six-minute video: “Does Capitalism Exploit Workers?” https://www.youtube.com/watch?v=4Ttbj6LAu0A From notes under video: The idea capitalism exploits workers stems from Karl Marx's work in the late 1800s. Although the definition of "exploitation" has changed since then, many still believe capitalist systems take advantage of vulnerable workers. Prof. Matt Zwolinski in the video explains why capitalism actually tends to protect workers' interests. … Zwolinski contends even if capitalism was exploitative, increasing political regulation and control would actually make the problem worse. Increases in government size and power make citizens more vulnerable to the state. Political officials are tempted to exploit this vulnerability for the benefit of the politically well-connected. … Unlike free market transactions, which are mutually beneficial, when politics is involved one party's gain u...
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 19 of 22 The person who bears the burden of a tax is not always the person who pays the tax. Taxes alter supply and demand and equilibrium prices and affect people beyond those who actually pay the tax. Many discussions of tax equity ignore the indirect effects of taxes. They often are based the “flypaper theory” of tax incidence. This theory holds the burden of a tax, like a fly on flypaper, sticks wherever it first lands. … Someone might argue a tax on expensive fur coats is vertically equitable, paid for by the rich who buy the coats, because most buyers of furs are wealthy. But these buyers can easily substitute other luxuries for furs. The main effect of a tax on furs might be to reduce the sale of furs but the burden of this tax might fall more on those who make and sell furs than on those who buy the...
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 18 of 22 Much debate over tax policy is about whether the wealthy pay their “fair share.” To evaluate it is useful to know the taxes families with different incomes pay currently. In Table 8, figures for year 2005 families are ranked according to their income and placed into five groups of equal size. Data is also shown for the richest one percent of Americans. Taxes are all those paid to the federal government. The second column shows the average income of each group · the poorest one-fifth of families had average income of $15,900 · the richest one-fifth had average income of $231,300 · the richest 1 percent had average income of $1.559 million The third column shows total taxes paid as a percentage of income · the poorest fifth of families paid 4.3 percent of their incomes in taxes · the richest fifth paid 25....
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 16 of 22 … Tax policy generates heated debates in American politics. The heat is rarely created over questions of tax efficiency. Rather, it arises from disagreements over tax burden distribution, over questions of equity. (For details check “What are aspects of an efficient tax and an equitable tax?” at ChatGPT or other AI information service). … The benefits principle of taxation holds people should pay taxes based on the benefits they receive from government services. This principle equates public goods to private goods. It seems fair a person who often goes to the movies must pay more in total for movie tickets than a person who rarely goes. Similarly a person who gets a large benefit from a public good should pay more for it than a person who gets little benefit. Revenues from the gasoline tax are commonly ...
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 15 of 22 … Marginal Tax Rates Versus Average Tax Rates. An average income tax rate is total taxes paid divided by total income. A marginal tax rate is the tax rate paid on income over a certain amount. Suppose the government taxes · 20 percent of the first $50,000 of income · 50 percent of all income above $50,000 Under this tax system, a person who makes $60,000 pays a total tax of $15,000 · 20 percent of the first $50,000 = $10,000 · 50 percent of the next $10,000 = $5,000 For this person · the average tax rate is $15,000 / $60,000, or 25 percent · the marginal tax rate, on income over $50,000, is 50 percent … … Other possible income tax systems include: Flat tax, same percentage of income tax for all earners. List of countries that use a flat tax for income tax (ao 250114). ChatGPT: Here is a list of countri...
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 4 The Economics of the Public Sector Chapter 12 of 36 The Design of the Tax System Section 14 of 22 … Part of the inefficiency of a tax system is the administrative burden, including · time and money spent yearly prior to April 15 tax day by taxpayers filling out tax forms due to federal and state governments · time spent throughout the year keeping records for tax purposes · resources used by government to collect taxes and enforce the tax laws … Many taxpayers hire accountants and tax lawyers to help with their taxes, these experts fill out the tax forms for their clients and help their clients arrange their affairs to reduce the amount of taxes owed. Critics of our tax system say these advisers help their clients avoid taxes by abusing the “loophole” detailed provisions of the tax code. These loopholes in some cases are unintended, arising from ambiguities or omissions in the tax laws. … More often ...
Recessions Are Good – Government Should Not Fight Them Mostly summarized from article Without Recessions, Americans Would Know Very Little Prosperity by John Tamny When governments fight recessions, they end up stagnating the economy. The federal government’s constant experimenting with bad ideas for fixing the market economy is one strong argument for limiting size and power of the federal government. To fight recessions increased government spending including grand infrastructure building programs is extraction of limited resources from the market economy, meaning reduced product innovation and supply. … Unlike business speculations in the marketplace, government spending isn’t market disciplined at all. Bad ideas die a quick death in the free market. Government-funded initiatives can be bad from the beginning and last many lifetimes. Recessions, although painful in the short term, are needed and healthy. They are a necessary cure so economies can expand. They lead to economi...