In Tax Policy, there are four standards that make for a “good” tax: sufficiency, convenience, economic efficiency, and fairness (add in a citation). Sufficiency looks at if the tax policy will offer enough to cover costs for government expenditures (add in a citation). Convenience is the measure of how easy it is for businesses and individuals to complete their taxes (add in a citation). Fairness is the measure of how impartial and just a tax policy can be (add in a citation). Lastly, economic efficiency is manipulating the tax policy to change how people will act to it (add in a citation). Today I will go over in more detail tax policies from the United States, what economic efficiency entails, do the tax policies correlate with economic efficiency and why I believe so.
To begin, I will be discussing two tax policies: Social Security and the Washington D. C’s bag tax. Social Security was introduced in
The Bag Tax was introduced in
As previously stated, Economic efficiency is measuring how people will act with changes in tax policy. It is seen in two perspectives, Keynesian and Classical. Classical economic theory holds that an efficient tax is neutral and has no effect on economic behavior. In contrast, Keynesian theory holds that an efficient tax is a fiscal policy by which the government can affect economic behavior (add in a citation). In 1964 the Employment Act was passed promoted full employment and a stable dollar (add in a citation). Both political parties came to a realization tax was a legitimate way to manipulate fiscal policies to their own agendas (add in a citation). Since this law, US takes on the Keynesian perspective of economic efficiency. Economic efficiency in the US tax policies is portrayed in all the policies to some extent. All of the policies start off with good intentions of putting away the money they receive and using it for what they say they would. As time elapses these good intentions are forced to be changed and the money starts going somewhere else where at the moment it is gravely needed. On the other hand, there are tax policies that have good intentions and make the citizens act in a certain way to get to the intended goal such as Washington D. C’s bag tax.
Economic efficiency starts off in a tax policy but as times passes it varies between tax policies. In the US, they take on the Keynesian approach to it which is how manipulating the tax policy to change people’s behavior will help them advance their political agenda (add in a citation). Social Security has the intended purpose of being deducted from every person’s paycheck that works in the US and it being put away for retirement savings as a last resort. This was the case in the inception of the tax policy but not so anymore. Social Security is not being used as it was intended, said Ric Edelman, executive chairman and co-founder of Edelman Financial Services in Fairfax, Va. and author of “The Truth about Your Future.” When Congress and President Franklin D. Roosevelt created the system in 1933 (and then passed the bill in 1935), the program was designed to be a safety net for Americans, he said — for those who had no financial support. Now, “a great many Americans are relying heavily on Social Security to maintain their lifestyle in retirement (add in citation).” Currently this tax policy does not portray economic efficiency because the behaviors of Americans today is Social Security is not a last resort but more like their security blanket. Many Americans see it as why would do I have to save for retirement when the government is going to give me free money? As for the Bag tax, it has been very productive for its intended purpose. Washington D.C. wanted to reduce the number of bags being used due to negative environmental effects. According to the city’s chief financial officer, the bag tax has resulted in an 80 percent reduction in the use of disposable bags (add in a citation). Citizens don’t want to have to pay more for disposable bags. When you add in a financial burden as this tax did, it helps manipulate the citizen’s behavior.
In conclusion, economic efficiency is a tax policy standard that measures how manipulating a tax policy can change a person’s behavior (add in a citation). For Social Security, it started off as a great plan for retired citizens to have money for the future. As time has elapsed since the inception of Social Security, it is being used for other purposes. So much so, that it is worrisome if there will be enough funds for our generation once were retired. As for the bag tax charged in Washington D.C., the money collected from the sale of bags is being used for environment. People have reduced the number of plastic bags they use in this area. This policy is still being used for its intended purpose. Economic efficiency can differ between policy to policy, it sometimes reaches its intended purpose and sometimes it doesn’t.