Tax Expenditures One Typical Characteristic

Tax Expenditures One typical characteristic differentiating U.S. public policy compared to Europe is that U.S. governments often use tax incentives rather than explicit government programs to pursue particular policy goals (which include providing pensions, medical insurance, home ownership, or private investment). For example, European governments might provide larger government pensions for retirees where the U.S.

might provide modest government pensions through Social Security and then encourage firms to provide additional pensions for its workers by giving tax breaks for the funds that the firms devote to their pension plans. Look at the list of tax expenditures in Table 12-1 of your text. Which do you think are more valuable than others? Why? Employers paying for medical insurance premiums since health costs are increasingly formidable and take up a huge percentage of the American treasury deflecting the government from apportioning money to otherwise necessary resources. 2.

The combined net exclusion of contributions to and earnings of employer-provided and individual pension plans: It encourages people to set up retirement savings account and is important for the same reason as above. It helps prevent the American government form having to dole out a huge chunk of money for a large and growing sector of elderly people who would need health care and protection. Would public goals sometimes be better pursued through explicit government spending rather than the equivalent tax breaks? Offer examples.

Government spending is the end-result of Keynes' theory. Keynes argued that fiscal policy could be actively used to dispel depressions, recessions and slumps. The crux of Keynesianism is that increase in spending impels increase in earning which encourages even more spending hence further increase in earnings and so forth. This is so because one person's spending goes towards (and increases) another person's earning; that person, in turn, by spending his earning, boosts the earnings of another, and so forth. In the meantime, you have a normal, functioning economy.

Keynes's theory impelled a host of interventionist economic policies during the Great Depression and formed the essence of Roosevelt's New Deal which influenced Britain and other countries in dealing with their own related depressions. The Great Depression in all countries had compelled people to hoard their money causing the economy to stop at a standstill. Keynes's theory urged governments to step in and to encourage public spending, which the government did by both increasing the money supply and buy buying things itself.

In this way, government spending is more effective than taxes since raise in taxes will only serve to dissuade people from buying. An attitude which leads to reduced consumerism, more businesses closing, less employment, firing of current workers, and reluctance to engage in discretionary spending. 2. Division of Government Functions Our federal system divides responsibilities between the various levels of government (federal, state, local). Take.