Question 1. In December 2017, President Trump signed new tax legislation that cut the corporate tax rate in the United States from 35% to 21%. Based on your understanding of the concepts discussed in Chapter 12, discuss whether this reduction in the corporate tax rate was a good idea.
The economy is one of the major concerns of any state. To meet economic objectives and to address economic concerns, states/governments devise strategies and take various kinds of political-economic measures. For any government, it is essential to ensure sustainable economic growth, as sustainable, healthy economic growth keeps the unemployment level at its natural rate. To ascertain desired economic growth; an economy or government attempts to increase 1) real income and 2) consumption. An economy does so either by adopting an expansionary fiscal policy, which generates employment and thus increases consumption or through tax-cuts, which could be income tax cuts or corporate tax cuts. In both cases, consumption/expenditure increases, which intensifies economic activities?
Trump Administration has opted for the policy of corporate tax-cut, from 35% to 21%, which aims to intensify economic activity in the United States. The issue, with such policy, is that it is an indirect approach, which relies on the size of trickle-down. Also, it is not sure how many competitive products and services would become after these tax-cuts, as labor intensive economies are producing products and services at a fraction of what the United States is producing. This policy is not comprehensive, as it should have also focused on increasing the size of the middle-class and consumption in the United States. The increase in real income, of an average American, would have a greater positive impact on the economy, as the Marginal Propensity to Consume (MPC) is higher and it is a major constituent of overall consumption and consumption is the engine of growth for the United States’ economy (Harvey).
Question 2. From your own life, describe one example of each of the following concepts:
a-The Free Rider Problem
One such example of free rider, from my own life, is the group project, which we had to prepare. One of the members was lazy and did not participate in the project, as she should. However, she benefited from the collective effort regarding the project.
b-The Tragedy of the Commons
Once we went for fishing, where we spent 12 hours. We could only catch four (4) fish, as very few fish were left in the pond, because of extensive fishing that week.
Work Cited
Harvey, John T. “Economists Say The Trump Tax Plan Will Have Disastrous Consequences.” Forbes. Forbes, 2 December 2017. Web. 8 February 2018. https://www.forbes.com/sites/johntharvey/2017/12/02/economists-say-the-trump-tax-plan-will-have-disastrous-consequences/#51a8dc504209.
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