Economic Essay

    My topic is the increase if the taxes which Clinton Administration is planning. This increase in taxes will target “multinational Corporations, end the favored tax treatment of extra long term bonds”, It will also raise capital gains taxes by “changing the rules for computing the cost basis of securities when they are sold at a profit”. What this will do is increase the taxes for the rich and will decrease the difference between the rich and the poor. The plan is intent on cutting the middle class tax and finance higher education (yeah right). The current tax law decreases the Federal Treasury Revenue and makes the economy less efficient or less competitive.
    The multinational tax would disallow multinationals to ‘assume’ half of their goods are foreign even if they are made in the US. Thus they could export to a country with low taxes and thus pay less taxes. This change would bring an increase of 7.9 Billion in corporate taxes over the next 5 years.
    This withdraws a lot of money from the economy and may thus decrease demand for goods, as people have less money to spend. The multinationals would employ many people and with and increase in their cost (tax is a type of cost) they would be forced to decrease the average amount of wages which the their employees received. This may take the form of decreased raises, or the laying off of some people. This would thus decrease aggregate demand for goods Nationally (as Multinationals would employ people in the US). It would also cause the companies to produce their goods in other countries and thus decrease the amount of people employed in the US. It would help the economy of other countries as those multinationals would move there. Thus the supply of goods demanded in the US would decrease. This decrease in economic activity (due to the reduction of the money supply and the wages of the people) would cause the economy to slow down and may plunge the country further into recession. These companies may also provide goods for the US and would thus decrement the supply of goods in America.
    The multinationals produce goods in the US to export into other countries. This would decrease. They would produce goods in the countries with lower tax costs and import them into the US. With the US balance of trade in such a poor shape, I am sure that any further damage to it would not be beneficial to the economy.
    They also wish to force people to use a bundle of stocks when computing capital gains tax. Presently there are 3 methods for computing the “cost basis of stock” and most people, like the economic man, attempt to reduce the amount of tax paid. This would bring another 600 million a year. Thus there would be even less money in the economy and that would further decrease demand. Wall Street would have a decrease in trading as people would not buy as many stocks as they did before, and the economy would lose out due to the multiplier effect, of the people in Wall Street losing a little, and passing this on to the shops which they buy things from etc..
    These proposals would prevent the large corporations from getting more capital, but increase the amount of small business in the economy. This change in the market structure may be good and bad. The sole proprietor would benefit due to the tax cuts to the middle class. However the large companies, which are usually Public Limited Companies would lose out.


--------------------------------------------------------------