eco203final 2 Essay

Submitted By Rawallace1
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Economic Recovery Plan
Rachael McDivitt
Nicholas Bergan

Economic Recovery Plan In times of economic struggle, not everyone has the same ideas for a plan of action to help people go back to work with good jobs, reduce the deficit, help the stock market and generally see the economy improve. Everyone seems to agree that government needs to cut spending, at least to some degree, but some economists like to see the government spend money on bonds and other measures which will put people in jobs and help build infrastructure. Some economists do not believe that government spending really influences the economy and that they should let the market settle naturally rather than try to artificially improve things. However, many strategies’ impacts are not felt until sometime later, and their impact can be difficult to judge in the immediate future. In order to improve the economy, we do need to reduce frivolous spending as well as impart sound economic policies to reduce debt, deficit, job loss and inflation. During periods of a downturn economy, the government will use discretionary fiscal policies in order to influence the economy and improve market conditions. By purposely changing taxes and spending, the government and Keynesian economists believe that they can influence economic activity, inflation and growth (Amacher, 2012). If the government increases their spending to increase aggregate expenditure, they may be able to help the economy reach an equilibrium to bring the economy back to a desirable income and output (Amacher, 2012). Any increase in aggregate demand (consumption, investment spending, government purchase of good and services and net exports) will help increase output and employment (Amacher, 2012). Classic economists think that the economy will respond to supply and demand and will right itself, while Keynesian economists do not believe that private demand alone will restore full employment (Amacher, 2012). It seems as though since more and more people in government are themselves very wealthy, with 47 percent belonging to the millionaire’s club and with an average worth of about $966,000 (Anonymous, 2012). This then, should come as no surprise to learn that the amount of taxes that the wealthy .01% pay has dropped from 70% of their income in federal taxes to only 35% of their income (Amacher, 2012). Rates for middle class have remained about the same (Amacher, 2012). This “good old boys club” that is still in effect seems to prevent congress from taking any real measures to go back to the old days of higher wealth equaling higher taxes. In actuality, many wealthy people actually pay a lower rate of taxes since the tax rate on dividends from stocks and investments are lower than the tax rate for an actual paycheck. For example, in 2011, President Obama reported an AGI of $789,674 and paid just over 20% in federal taxes. His secretary had a salary of $95,000 and paid a slightly higher percentage. The tax system needs a complete overhaul and wealthy people should be required to pay a much higher tax rate than those of middle class. People at or below the poverty line should not be required to pay income taxes at all. Low and middle class incomes all go back into the economy. Wealthy people tend to put their money in banks or investments and don’t necessarily have an immediate impact on the economy. Bush tried to infuse the middle class with cash in his “stimulus” package, sending $300 to individuals and $600 to couples, but the impact was not nearly as much as anticipated because the money largely went to pay off credit cards or into savings (Banow, 2012). Perhaps the administrative nightmare of sending citizens money directly isn’t the answer. It certainly hasn’t been attempted since the calamity of the first try. An alteration to the tax code, placing the burden of the taxes on the wealthy and letting the people who actually buy things (i.e. the poor