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Increase of Taxation Effect on Middle Class

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    Increase of Taxation Effect on Middle Class Effects of Taxes are needed in order to securely administer and fund different governmental organizations, as well as construction and other universal infrastructure services. Many proponents of taxes suggest that taxation is way too extreme within the present day economic trends that exist within America. Taxes do fund many programs and construction of certain projects within America, but also affect certain aspects of America’s economy. Taxes do present positive as well as negative characteristics within an economic system.

    Increased taxes do have a direct effect toward consumers, businesses, and the overall economy. Consumers are exposed to extreme effects of taxes, and may even be affected more than any other group within the economy. Increasing prices on their products due to the increased taxes makes up most of the potential profits for businesses. The consumers therefore lose out because of the increased prices, and must decide on another budgetary analysis. For example, a consumer who is introduced to new taxes may decide to stop purchasing a certain product.

    A consumer may choose to not purchase a good that my normally go along with another good. This good is a complimentary good and may not be bought because of increased taxes. According from article about tax increase on alcohol, “Some students said they will purchase certain types of alcohol. “I won’t be buying this (hard alcohol) stuff, probably just Budweiser,” said Brian Pinuleac, senior in LAS. ” (The Daily Illini) For instance, a consumer usually buys higher priced brands of beers, and due to higher taxes; the consumer may be content in purchasing generic brands of beers instead of the normal purchase of higher priced brands.

    This is labeled as substitute goods, and denotes how a change in taxes will cause a consumer to substitute other goods, and in this case a cheaper good, in place of the normally purchased good. Another phenomenon that exists with consumers and increased taxes is the depictions of inferior and normal goods. With increased taxes, the consumer has less money to spend on extravagant goods or leisure goods. From the Harrison Group Research, “According to recent research from The Harrison group, the entire discretionary spending budget for affluent consumers over the next year is projected to be around $56 billion.

    About half that is expected to be spent on luxury. ” (The Wall Street Journal) An example of this phenomenon is illustrated in the purchasing of diamonds. In times of increased taxes, goods such as diamonds would not be purchased as much as times with normal taxation. This makes the purchase of diamonds an inferior act because a consumer does not display as much concern as purchasing diamonds as compared to other goods. Another illustration of the effects of taxes on consumers is seen in the saving side of the consumer world.

    Consumers would tend to spend less on goods and services, so in exchange they would tend to save more of their money. This would decrease the amount of money that is spent on goods and services. According from The Middle-Class Tax Cut’s Impact on Consumer Spending and Retailers, “Allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax (AMT) could cut the growth of real consumer spending by 1. 7 percentage points in 2013. ”(The White House Blog) Consumers would tend to have more money in the bank because they have nothing else that is advantageous to do with it.

    Consumers would be greatly affected due to an increase in taxes, and would have to make some very tough decisions in spite of them. The usual truth about consumers is that the more money they have, the more goods they will buy. They continue to save the same amount, and continue buying more and more of different goods. Consumers would have to choose between different goods, different types of goods, and whether or not they intend to save money within the constantly fluctuating economic environment. Businesses also are exposed to many different effects in reaction to the increase in taxes.

    For instance, the taxes cause businesses to increase the costs of goods that consumers buy. From the statement to reporters the day after the election, Mr. Boehner said, “The foundation of our country’s economy — the rock of our economy — has always been small businesses in the private sector. I ran one of those small businesses, and I can tell you: raising small businesses’ taxes means they don’t grow. ”(The New York Times) It means the tax increases encompass a great span of the nation, and can affect every aspect of the business.

    Taxes that are collected from businesses that effect the cost of the goods and services within businesses include: property taxes on all business property (furniture, machinery, inventory, real estate), sales taxes on goods and services that businesses purchase (utilities, property, inventory, real estate), gross receipts tax businesses pay to local governments, state and federal income tax on business profits. These taxes affect every aspect of the business, and can trickle down to every productive sector of the business.

    Businesses also refrain from selling assets as much as possible. These assets cost more money to produce and also to maintain, and is not as beneficial to the business as it was before the increase in taxes. From NFIB research, “Raising taxes on small businesses, especially in the current economic environment, stifles their ability to grow and create jobs. Congress must act to avoid this economic hit to over half of the business community that creates two-thirds of net new jobs and employs over half the private sector workforce. (Western Free Press) This can be seen in a company’s inventory. A company may decide to purchase less of an inventory because of the lack of controlling of costs for that inventory. The businesses purchase less, and the suppliers of the inventory end up selling less. It makes a domino effect, which affects every aspect of production and business. According to DiNapoli. His analysis found that “The pending 47 percent hike in the payroll tax rate would cost New Yorkers $7. 7 billion in 2013 and immediately reduce paychecks. (LoHud) Businesses refrain from hiring extra help as much as possible, and many time people refrain from working more. The businesses cannot afford as much labor within their business because of the increased taxes. With the decrease in purchasing by the businesses as well as the decrease in selling by the businesses, comes a decrease in hiring of workers. The business cannot afford to add another worker to a lowered output, which would decrease the efficiency and productivity of the business. This can be seen in a construction firm.

    Many construction firms do not have business when taxes are high. Consumers are not willing to spend more money until the economic environment is favorable, and so the construction company is out of work. This act leads to layoffs and other unfavorable characteristics that a worker must succumb to. The businesses, such as the construction business, often lead to shut downs and a total ceasing of production when an unfavorable tax environment is introduced. Business reactions due to tax increases affecting every aspect of the working environment, and business environment.

    The overall economy is affected by the introduction of increased taxes. Increased taxes cause businesses to suffer with selling and producing their products. Appearing on NBC’s “Meet the Press,” McCarthy said, “The most economists agree the best way to get additional government revenues is by closing special tax loopholes,” “I think if you close special-interest loopholes, you have a fairer process,” McCarthy said. “It also makes you invest your money not based on what the IRS says but based upon an economy. (NewsMax) For instance, the increase in taxes on the semiconductor industry caused a massive shortage of computers that contained Intel processors. This increase in taxes and shortage of processors caused the shortage of computer products in the economy. This then caused a shortage of computer services in the economy, and caused a decline in technological development and research. Without the massive amount of technological development and services, the economy was subjected to a lack of innovation. Another aspect of the increase of taxes on the economy is seen in the stock market.

    For example, an increase in taxes causes businesses to not perform as well as the quarter before. This leads to a decrease in the overall price of the stock market and a decrease in investment in the stock market. This action can be seen in American Airlines. According from, Article New York CNNMoney “The parent of American Airlines, which went into bankruptcy last year, announced a quarterly net loss of $1. 7 billion on Thursday, slammed by reorganization costs and rising fuel prices. ” (CNNMoney) Due to the increase in fuel costs, due to OPEC and taxes, American Airlines suffered with earnings.

    When this news hit the markets, investors sold off American Airlines and the resulting transport sector of the Dow Jones fell. Since all stocks are subject to the transport sector, the entire market felt the loss of the transport sector. The economy mainly is affected in the macroeconomic environment of America. Taxes have a direct effect on consumers, businesses, and the economy. The increase in taxes may be needed at some times, and the populace must endure the increase. Taxes sometimes are increased due to uncontrollable forces, which are the taxes that all consumers dislike.

    Many people view taxes as an “evil” drain on the economy. The fact is that Government needs money to operate just as businesses do. Tax money creates jobs in the government, as well as jobs in the private sector for those fostering compliance by private entities of government regulations. It is popular and easy to hate the Government. However, as longest tax raised money returns back to the economy by let’s say investments of the government in education, infrastructure or environment, I believe the whole economy will benefit.

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