Taxation and Price Control on the Economy March 22, 2009 Taxation, a system of raising money to back our government, in which all governments require payments of money-taxes-from people. The government use tax money to pay for expenses that are well needed such as: the service of America soldiers, police officers service, hospitals and the list go on. Without taxes to fund its endeavors, the government could not exist. Is the tax levied (imposed) on the producers or consumers?
Every walk of life has to face the music of taxation at one level or another. Taxes are used for many reasons such as stimulating the economy to governing spending. According to Johnson (2005) tax levy was used as a form of governing particular behaviors. Taxation based upon the wealth or a particular sect of people in a higher financial category was instituted as a way to generate finances to run the government and often to aid the government in day to day business ventures.
In the current financial economy direct taxes such as: income tax, real property tax, business licenses are some of the required supplements to taxation. Indirect taxes such as: general sales taxes on groceries, marriage licenses and auto purchases become the revenue needed to sustain governmental functions while encouraging the usage or non-usage of a product or services. Both the producers and consumers are affected by the usage of tax levy principles. How does the tax affect supply or demand? Taxation affects everyone including the supply and demand chain of production.
What is supply? Supply is ones ability to provide a product or service to another with a variety of prices, quantity and times that equally dependent upon the demand for service. Without a consistent supply of products and services, business and homes around the globe would fail. Taxation affects supply through the mechanism of growth. What is demand? In the respect of business, demand represents a need or ability of product to be purchased and used on a consistent bases; therefore creating a demand.
Taxation is expected but can be growth curve and devaluing curve for supply and demand. When a product is placed under high taxation such as tobacco products the consumption level is decreased, which means that the demand for the product will be affected by the cost associated. Supply also is affected when given extreme or high than normal taxation. Once again the producer of a product becomes affected by the decline in purchases from the consumer therefore, creating a domino effect on the economy (Johnson, 2005). How does the tax affect the equilibrium price and quantity?
Understand equilibrium price and quantity is realizing the algebraic expression of price, supply and demand. When quantity demands equal quantity supply! Example: Wal-Mart has 1 package of noodles left on the shelf and 25 people standing in line to purchase. The price of the product is subject to increase as its value is greater the available number; however, it there are 25 packages of noodles on the shelf and 1 person in line to purchase, the odds are favorable toward getting a reduced price for the noodles. In general this statement lends true toward any principle.
The more demand of the product the more costly it will be and the less demand the less costly it would be. In this market, describe a hypothetical situation where a price ceiling or floor could be imposed. Currently with the economic crisis in America, our newly elect president it trying to place a ceiling on bonuses and most CEO pay salaries. In light of the current issues surround AIG, a price ceiling might not be a bad ideal. There are many situations in our history when a price ceiling or floor was instituted to prevent the American public from being taken advantage of.
In 1979 – 1981 a price ceiling was established to control gasoline because the rapid cost increase that was passed on to the consumer and if any store owner was caught in an overage of the maximum price, they were found guilty of fraud. Then was the case in history when rent controls were place to regulate equilibrium for rent. At points in our history it is known that a ceiling or a floor was imposed to regulate a problem. In recent days of the Governor Sunny Perdue was trying to establish a ceiling on water being released from the Chattahoochee River to the Florida Panhandle.
According to the daily news reports via local news station (11-alive; Fox 5 and others) the city of Atlanta and surrounding cities was going to run out of water if the draught continued and the water levies were allowed to continue sending gallons of water down stream. After several petitions to stop the effort of water release the governmental officials came to an agreement but had the Supreme Court had to get involved the Governor for Atlanta was pushing for a ceiling or maximum amount water to be released that would not leave Atlanta desperate and its citizens without adequate water supply.