FREE ESSAY ON EFFECTS OF TAXES

EFFECTS OF TAXES

Effects of Taxes
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 effect 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 effected 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. For instance, if a consumer normally buys powdered cream with coffee
grinds, increased taxes may require a consumer to only purchase one of the goods. The
coffee would be the good that the consumer would purchase, and would not purchase the
creamer. A similar phenomenon would occur for a consumer that participates in buying
superior and inferior goods. For instance, a consumer usually buys higher priced brands
of cereals, and due to higher taxes; the consumer may be content in purchasing generic
brands of cereals 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 another good, 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. 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. Increased taxes do lower the purchase
of inferior goods by consumers, but does not effect the purchase of normal goods by
consumers. A normal good is a good that is purchased no matter what type of economic
event is going on, be it taxes, inflation, or other things. A consumer would be more
likely to continue purchasing a normal good such as milk as compared to the inferior good
of diamonds. Milk is always needed by a consumer, and is thus continuously purchased by
the consumer in good times as well as bad times. Another effect that consumers are
exposed to is the buying power of a consumer's money. 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. When taxes are
increased, consumers are more reluctant to be impulsive with their money and impulsive
goods are thus effected by this reluctance. Impulsive goods such as magazines at the
checkout rack are purchased less and less by consumers when an unfriendly tax environment
is alive. 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. 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 effected due to an increase in taxes, and would have to make some very
tough decisions in spite of them. 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. The tax increases encompass a great span of the nation, and can effect
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 effect every aspect of the business, and can trickle down
to every productive sector of the business. Other costs to individuals and businesses,
due to an overly complicated tax system, is the cost of keeping track of, accounting for,
and filing of all tax information. This aspect of taxes causes businesses to provide more
funding for financial departments. Even when a company does not produce as much due to
the taxes, the company must still spend more money in order to control their finances
fully due to the dramatic increase. Not to mention the costs that the government has to
spend to police the tax codes. There are also many other negative effects that taxes have
on growth, productivity, and freedom. Businesses refrain from buying equipment as much as
possible. The turnover on certain items such as a new computer network is low due to the
increased price with the increase of taxes. The businesses thus must continue working
within a stifling work environment because of the lack of innovative resources.
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. 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 effects every aspect of production and
business. 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 effect every aspect of the working environment, and business environment.
The overall economy is effected by the introduction of increased taxes. Increased taxes
cause businesses to suffer with selling and producing their products. 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. 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 effected in the macro economic 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.