Our government taxes

"The real problem with American government is that it is not as democratic as it should be. Affluent special interests have too much power in our political system and the public has too little."

I took this line from the website governmentisgood.com and I am going to elaborate on my thoughts on it and make it relate to Economics. 




Let's start with the Democratic party and their view, in my eyes, on the economy. I believe that the democratic party thinks we should get what we work for. If we take care of our responsibilities we should be rewarded. Rewarded through pay and days off from labor. It is a simple thing to go by and it makes everyone happy. When we work hard we get paid and we go out and have fun and shop at the mall which affects the government because we put our money back in the cycle. The republicians beleived that we should build our government from the top down(rich to poor) which is not the way to go. We need to go from the middle class out in both directions. The middle class should not have to pay more taxes to the government than the rich. It is just simply not fair but Mitt Romney saw it that way. The Republicans, driven by the new members of the Tea Party, wanted to cut $61 billion from the budget, while the Democrats were willing to cut only about 1/6 of that amount. Both Democrats and Republicans have strayed so far from the path of responsible financial policy that the concept of balancing the budget is foreign to them. I believe many of them simply cannot grasp the concept of only spending what you have. I do understand that making budgetary cuts will be painful, but it will not be nearly as painful as going bankrupt!


Tax relief is the Republican route to growing the economy. A Republican government would reduce taxes for businesses to allow businesses to grow and thus hire more employees. Republicans also seek to limit income taxes for individuals so that people can hold on to more disposable income, which they can then spend, save or invest. Like the Republicans, Democrats believe the government should subsidize vital services that keep cities, states and the country running: infrastructure such as road and bridge maintenance and repairs for schools. Democrats also call for tax cuts for the middle class. But who benefits most under each platform? The conventional wisdom is that corporations and the wealthy will benefit more with a Republican tax policy while small businesses and middle-class households will benefit from a Democratic tax policy.





source: http://www.governmentisgood.com/articles.php?aid=23

Tax on sugary drinks

I picked taxes on sugary drinks to write about this time because I stumbled upon this link: http://www.medicalnewstoday.com/articles/268145.php


I supported the idea of a tax on unhealthy foods because it is a way to price the full social cost of the good. It is an example of Pigovian tax. A tax which internalises the externality of the good. Recently, the Academy of Medical Royal Colleges has produced a report stating 10 factors that could help reduce the UK’s obesity epidemic. One of these is an experimental 20% tax on sugary soft drinks.
A new study claims a 20 per cent tax on sugary drinks would reduce the number of obese adults in the UK by 180,000, bring in £276m to the Treasury and save the NHS millions. These are not made up numbers by the way. I found them on a UK website a few days ago but I can not find it again. It was a government sight about taxes.


Higher price will reduce demand and make ‘healthier alternatives’ more attractive. Over time, the higher price may change peoples spending and eating habits. The sugary soft drinks create an external cost – of contributing towards obesity. Since obesity has external costs, the tax is making people pay the full social cost. It is the same principle as taxing petrol so people pay the social cost of congestion and pollution. You could also argue sugary soft drinks and other unhealthy foods are a demerit good. People don’t know (or ignore) the damage to health. Making them more expensive discourages the consumption of demerit goods. If the tax is on volume, it may encourage people to enjoy smaller sizes. Then people can enjoy without drinking to excess. e.g. the free refill is a popular marketing tool, but encourages consumption to excess. But, could a tax stop free refills? It could raise up to 0.3 billion. This 0.3 billion could be used to lower other taxes, such as medical or it could be used to increase spending on the government elsewhere or specific obesity units.