Health of the Economy Assignment

27 04 2011

Health of the Canadian Economy Assignment

Working as a class, your job is to determine the health of the Canadian economy based on tradition economic indicators (we will consider other measures later in the course).

Each group will be assigned an indicator to research, present and assess.  Once the presentations are finished, you will discuss and determine, as a class, the overall health of the Canadian economy and complete a summary Prezi.

More details after the jump…

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Unit Three Test

27 04 2011

For this test you will be required to choose 2 of the 4 problems.  There will be statements to correct on the test as well.

Econoville is a fast-growing town, struggling with many problems.  Richard Wilkins, the mayor, has hired you for your economic expertise.  Choose two of the four situations and provide recommendations on what the mayor should do. For each situation, thoroughly describe the economic principles involved in creating the problem and then offer solutions.  Consider the pros and cons of your solution and make a clear recommendation.  For the purposes of the test, you can assume the mayor has significant power.  (i.e. don’t worry too much about the politics, focus on the economics).

  1.  The town has a small public park that is sometimes empty and sometimes too busy for everyone to use (eg Frisbee players are trampling through picnics, etc).  People are complaining that they can’t enjoy the park because it is too crowded.
  2. A new electricity generating station opened to meet increased demand from the town.  Residents near the plant are complaining about increased air pollution and asthma cases in the neighbouring communities are increasing.
  3. Rent prices are increasing in town and some residents are paying over 60% of their income in rent.  Some residents can no longer afford housing of any type.
  4. The town budget is limited and the mayor needs to find new sources of revenue. The town currently has no taxes in place.  The mayor would like your opinion on what type of tax or taxes would raise the most money without unduly burdening town residents.
Marking Scheme

Criteria

Insufficient Evidence

Limited Evidence

Some Evidence

Considerable Evidence

High Degree of Evidence

1) Does the answer demonstrate an understanding of the underlying economic concepts? (KU)

0

1

2

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4

2) Does the answer use appropriate models, graphs and examples to support arguments? (AP)

0

1

2

3

4

3) Is the answer well-reasoned? Does it consider multiple perspectives and all available evidence? (TI)

0

1

2

3

4

4) Does the answer come to a clear, easy to understand conclusion, supported by reasoned arguments? (CM)

0

1

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4





The Pros and Cons of Corporate Taxes

25 04 2011

First of all, what is a corporate tax? It is the tax on income or capital of certain types of legal entities, or simply put, taxes on corporations. The usual practice is to impose the taxes on net taxable income, which is the gross income after it has been accounted for deductions and credits. In politics, a few argue to cut corporate taxes, others desire to increase them. But ultimately, what does the corporate tax do?

Pros

A Source of Revenue:

Ultimately, a tax is either used to gain revenue for the government. Corporate taxes effectively do this because corporations are the largest money makes in the economy. This means a steady and strong flow of cash for the government revenue. During the recession (2009), a figure of 30.4 billion was made on corporate taxes of 10 corporations alone. This shows that, by targeting those making large profits, a government can make gains when companies do. It increases the revenue of the government which may be used towards national debt or public services.

For the Greater Good:

Another point is that the benefits seem to outweigh the negatives. The tax is effective in that it takes from large companies and distributes the benefit to everybody. The taxes may take some money away from businesses but ultimately it is not harmful. It still allows for businesses to function and grow and do not overly inhibit companies’ ability to make profit.

Equitable:

This tax is equitable in that everybody pays taxes. Corporations should not be an exception. Since corporations exist in the country, they benefit from the country’s policies and services. If corporations were not taxed, they would be getting a free ride on services. As a part of society, it is equitable for corporations to pay taxes.

Cons

Target of Taxes Misses the Mark:

The fact is, although corporate taxes are meant to tax wealthy companies, the costs actually end up being sent somewhere else. The groups that end up getting the burden of these taxes are none other than the consumer and the worker. Workers are affected in that the costs of the tax either reduce their salaries or hiring. While consumers are affected in that the company passes on the tax in their products and services by making them more expensive.

Attack on Corporations:

In addition to that, another con of the corporate tax system is that it takes away funds from companies/corporations. This is economically inefficient, because in an economically efficient situation, no one can be made better off without making someone else worse off. Corporate taxes end up making companies worse off than if they were not being taxed.

Scares away Business:

Lastly one must consider the economic growth in a country. Companies try to pick the best place that can facilitate their growth, where they could be the most profitable. By introducing a corporate tax in a certain country, companies may avoid it and search for other alternatives. Some may turn to tax shelters like the Cayman Islands; others just search for locales that have lesser taxes. Quite simply, a corporate tax can scare away potential and current investors to other countries, leading to a reduction of economic activity.





Capital Gains Tax

25 04 2011

Capital gains tax is a tax on capital gains. Capital gains is the revenue made from selling capital assets, which are assets that are not easily sold to create cash and are kept for long periods of time. Examples of capital assets include investments, real estate, and in the case of businesses, machinery, land and buildings.

Why is this tax a good option?

1. Equity

Without the capital gains tax, people earning an income of $100 000 by working would be taxed, while wealthier people who can afford to invest in capital assets pay no tax from making a capital gain of $100 000. This puts the burden of tax on less wealthy individuals who have a harder time bearing the tax, rather than on those who have a higher amount of disposable income and can afford to pay more tax. Having a capital gains tax helps redistribute wealth in an economy and prevents the gap between the rich and poor from growing.

2. Stabilizes Amount of Taxable Income

The capital gains tax not only generates more revenue for the government, but also prevents people from putting all their money into capital assets as a way to escape taxation. This in turn prevents the depletion of the amount of taxable income available to the government. By maintaining a steady source of tax, the government will be less likely to experience a lack of financial resources to fund its activities and fall into debt.

3. Extraneous Costs

If there was no capital gains tax, taxpayers will attempt to find a way around paying tax by turning their income into capital gains. This would lead to higher costs for running the judicial system, because the court system must deal with cases of people illegally turning income into capital gains to escape tax, and the government will have to spend time and energy creating legislation preventing taxpayers from escaping tax illegitimately.

Why is this tax a bad option?

1. Discourages Investment

Investing in capital assets increases one’s income and spending power when one sells the asset to make capital gains. A capital gains tax decreases revenue made from capital gains and thus discourages people from investing and taking risks as a way to gain revenue. This slows economic growth as a result due to decreased consumption (due to lower incomes) and investment in innovation.

2. Money Lost

The growth in the monetary value of capital assets is often the result of inflation, so the capital gains tax would essentially be placed on inflation, not on an actual increase in the value of the capital asset. As a result, people could actually be losing money when they sell their capital assets. At this rate, individuals may be encouraged to spend their money rather than try to place it into capital assets for fear that they will actually lose money when they sell the asset. This can cause problems such as insufficient investment into retirement funds.

3. Decreases Flexibility in Choosing Investments

With a capital gains tax, investors may be discouraged from switching their capital assets to ones that offer a higher rate of return for fear of losing money when selling their old capital assets. This prevents the investors from increasing their income and spending power.





Income Tax- Pros and Cons.

25 04 2011

(Aparently I didn’t get to posting this, I could have sworn I had, my mistake

Regards,

Unicorns Everywhere)

PROS:

Fairness: Canadian income taxes are a progressive tax based on marginal income and tax brackets. Simply put, your income is put into levels and then you are charged accordingly. Because of this those who make more income then others are taxed more and conversely those who make less are charged less. Because the heaviest burden is put on the backs of those who can afford it the most, the system works to achieve a level playing field for all.

We all remember those times in monopoly where your jerk of a friend lands on the Income Tax square and decides to count up all his assets and take off 10% instead of paying the $200. Yeah, that’s income tax.

Quick to impliment: From a government standpoint, because the reaction of the public is so quick, the government can quickly lower or raise taxes in order to achieve certain results. For example, in a government deficit, the government can raise taxes in order to quickly gain money in order to pay these loans off.

“Mr. President, we’re in a deficit” “Shut. Down. Everything.”

Stability: Income taxes are imposed on everyone who earns income, but unlike other kinds of taxes, they are relatively stable. For example, in an depression, the unempl0yment rate may rise to 10% and even then, the government will still gain money off of the other 90%. Because of this, the system does not take as much of a hit as other taxes.

Benefits to society: Sure, you may be paying through your nose with these taxes, but at least our parks are pretty.

CONS:

It’s taxes: Taxes are solely based on government benefit. From an economic standpoint, we know that because we are taxed, we lose money to spend which in turn affects the demand curve of all products. Because consumers don’t have money to spend, the economy generally falls with higher taxes.

Loopholers: When you have taxes, you have people who don’t want to pay taxes. People exploit the system by using loopholes, cutting money or just not paying them. Because of this, Revenue Canada has to hire over 90,000 people trained in auditing who simply revise the taxation system to make sure that it is air-tight and impossible to scam. These thousands of people could easily be put into better use and are an example of implicit costs (HEY MRS. CUTTLE, I’M LEARNING.)

Inconsistent Taxation: One gripe many people tend to have with income taxes is that it’s inconsistent. Warren Buffett, one of the world’s richest investors is only submitted to 17% tax, where his secretary has to pay 30%. The unfairness of the system tends to outrage people and because of the huge amount of people being taxed, there is very few resources able to be allocated to dealing with case-by-case basises.





Excise Tax.

25 04 2011

Excise tax is commonly known as an inland tax, a tax on a specific good or service, often imposed on the quantity purchased rather than the value. An excise is an indirect tax which makes the producer or seller pay taxes to the government and try to recover the tax through raising prices. Excise tax is usually imposed in addition to anther indirect tax such as sales tax.

Pros:

Playing on equal grounds:

If companies pay taxes relative to the quantity of goods sold rather than the value of the certain good, the big companies that sell more pay more taxes and those companies that can’t compete to those larger companies don’t have to pay taxes equal to those large companies.

Government revenue:

Excise taxes give government a lot of revenue. These taxes are place on inelastic goods such as cigarettes and gasoline. These goods are sold a lot in quantity and since excise taxes affect the quantity of goods you sell, these companies pay a lot in taxes to the government.

Control Over the consumption of Goods:

Another reason excise taxes are a good thing is to somewhat control what the people are buying. For example since a large population of the people smoke cigarettes and the government wanted to reduce that percentage they can raise the excise taxes of cigarettes and making people pay more to smoke.

Cons:

Unequal Grounds:

Companies that can sell larger quantity of goods face higher tax rates then of those companies that sell less in quantity.

Increase in Taxes as a whole:

Excise is often somewhat similar to other taxes and sometimes doubles up with them. Since the two taxes largely apply to the same types of goods, people are forced to pay tax twice over on the same items once through excise upon purchase and a second time around through customs duties upon transportation.

Increase tax of Medication:

Legal drugs are subjected to taxation in some countries. This has raised controversy about the fact that this tax leads to hugely inflated prices of ordinary and even potentially lifesaving medication.





Journal 7

25 04 2011

Journal instructions are available here.

This is the second journal prompt provided before the May 2nd deadline for Journal Submission #3.

Journal Prompt

For this journal you are to consider the economics of marijuana.

  • Is there a failure in the market for medical marijuana?
  • What are the externalities associated with marijuana? Consider the externalities when it is illegal and if it were legalized.
  • Should marijuana be treated liked alcohol and tobacco, in terms of taxation and regulation?
You may choose to answer some or all of the questions.  Try to limit your arguments to a Canadian perspective.  You can use research and statistics from other countries to support your argument but we want to consider the costs and benefits from a Canadian perspective.

Remember, a good response will use economic terminology to help justify your opinion.

Background Material and Further Readings

There is a lot of information available. These links are just the starting point.  Be aware of the sources (legitimate, any bias) of any research you use.

The Court Case

General Information

Other Aspects

Practical Details

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