http://www.sj-r.com/news/stories/28056.asp
Mike Smith plans to raise income tax rates in Illinois from 3% to 6%, which would generate about $3 billion tax revenue. The tax increase will only apply to people earning over $250,000. The revenue will be spent on infrastructure, education, and tax relief for earners under $250,000. Many people are agreeing with him such as Rep. Joe Lyons, a Chicago Democrat who likes the idea of Robin Hood referendum. However, not everyone agrees with Smith. People also believe that increasing taxes will not help until they learn to control their spending. United States is in a recession and Rep. Frank Mautino recognizes this. He says he does not support it because doubling taxes during a recession is just insane.
In chapter 6, we looked at the determination of national income mainly using GDP, the gross domestic product. In times of recession, we are taught to lower taxes or increase government spending. Smith is doing the opposite, which is a bad idea. He is not just raising taxes a little bit, but doubling it. This will cause a great decrease in GDP where they are looking for an increase. Using the equations taught and assuming MPC is 0.8, change in GDP will be –[3 billion x (0.8/0.2)] = -$12 billion. This is a huge change in GDP and I do not think they will carry through with this plan.
I’m not sure what Smith is thinking, but I think he will use the tax to increase government spending. This sort of makes sense, but it will be really difficult for the civilians in Illinois. If they just try lowering taxes and carefully spending, they should do all right for the future. They are having problems controlling their spending so I think they should get professional economists to figure out where and when to spend their government funds.
2 comments:
I believe this plan to increase income tax on high income earners is a very good plan, because the high-income earners earn more than enough. Also, the 3% increase in tax is not too much, roughly $750 for a person earning $250,000. I believe other places such as Vancouver should increase their tax on high-income earners also. On the other hand, increase in tax for high-income earners could cause them all to move to a country with lower tax rates. Therefore, this plan should be executed with much care if our country were to increase the income tax rate of high income earners.
I too don't know what Mike Smith is thinking, but I agree with you that he might be generating money to increase government spending. In addition, 3% increase in tax will not affect much of its citizens because it is not very significant in their expenses. Overall I still believe it is a bad idea for the government of Illinois to increase during recession. According to Keynes' Law government should decrease tax and increase government spending to prevent the country from going into a recession. Therefore, to my understanding of increase in tax it should be impelled when the economy of the country is doing well.
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