Macroeconomics: Unit 4, Taxation, and the Effect of Taxes on the Economy

CoursesMacroeconomics
LanguageEnglish Language

Transcript

00:22

Yes but Ben Franklin lived in an age when one

00:25

out of every two people died of syphilis So you

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know it makes sense anyway Ben's niece Sally Franklin it's

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his niece buys a fruity tooty ice cream She pays

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a sales tax of that value added tax or a

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sales tax When Mr and Mrs Quincy Adams buy a

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house together and live on it for around while 30

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years they pay property tax when you get that sweet

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sweated for paycheck and noticed that a huge amount of

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it was chopped off while you perhaps bitterly realised that

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you do in fact pay income tax Federal state sometimes

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city a looking at you their Manhattan well authorities in

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most cases the government our kind of financial little parasites

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Sorry guys Just keeping it real They don't actually produce

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anything right like unless you called governing thing so they

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exist on the taxes and hard work of the people

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they want to get paid for their you know governing

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work with no reason to be sensitive to the amount

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of money they're spending or how efficient there spend is

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or whether or not the value of that spend lives

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beyond well the next election cycle Right Well anyway taxes

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are the financial gasoline in the engine that the government

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likes to run like that Think of it as the

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blood that parasites sucked out of your leg when they

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latch on And not all taxes air bad or wasted

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of course other than the salaries of Congress people thie

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taxes collected from the government well governed by moving cash

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from the haves to the have nots through programs like

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while Social Security is one of a Medicare Medicaid and

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another some taxes are unavoidable Can't spends saying you know

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death and taxes But not all taxes are strictly necessary

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Sometimes people or companies we'll get tax as a consequence

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for doing something bad Example Both companies polluting into a

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local river the government may impose a tax to make

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up for the social badness that the polluting is causing

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So this tax creates all kinds of problems for the

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company doing the polluting Why Because it competes internationally and

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lots of second and Third World countries really don't care

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if they pollute If the whole country is on the

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doorstep of starvation why would they care about cancer causing

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agents in the water that will only begin to show

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up two or three decades from now So this tax

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is kind of a dangerous weapon certainly in the Western

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world if it's charged against us and Western countries who

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are quote first world unquote who do care about you

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know three headed fish and you know children having problems

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from drinking the water downstream Well then how can those

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Western companies compete against Somalia Why do they not care

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Because their government is highly corrupt and essentially gates The

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resource is that should be available to the common person

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in the country So the common people aren't worried about

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living to celebrate their 80th birthday there just helping to

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survive to next week Okay moving on taxing pollution Well

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assuming that the world was globally on the same page

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would either force the polluting companies to make ICO friendly

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decisions and raised prices Eventually making consumers pay for the

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non pollution or well taxing pollution may force people toe

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exit the business altogether And well then they'd buy the

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supplies from foreign countries who will do more damage to

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their people in the long run because well if they

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don't those countries don't have a short run right The

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people all starve and die and well what do we

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do about this Yeah So things are never as simple

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as they seem in the New York Times Okay so

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taxation policy becomes a political football And while we know

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taxes affect the economy we aren't able to perfectly manipulate

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the economy's performance with taxes taxing bad behavior and using

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proceeds to fix the things wrought by that bad behavior

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Right Taxes don't save everything They just kind of like

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a meld politics in one direction or another Well the

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whole notion of resource reallocation is dictated by popularly elected

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politicians leave a bad taste And while pretty much everyone's

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mouths the hardworking educated financially successful compatriots I feel that

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too much of their hard earned money is being allocated

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to the lazy the Slava nly the seven deadly sinners

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right while the poor feel that the wealthy have just

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one too many private jets so nobody's ever happy Alright

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trick is to keep everybody equally unhappy equally unhappy Yeah

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so that we don't revisit that whole You know Les

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mis thing where you hear the people sing and crowds

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play soccer with former politicians Heads as effective as that

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kind of revolution may in fact be okay Another quick

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example Governments can use tax policy to affect the livelihood

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of their people Weapon they deploy is known as fiscal

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policy and its goal is to stimulate or slow down

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the economy So when the government cuts income taxes people

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generally have more disposable income to spend or save right

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You were paying an average total tax of 27% on

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the 100 grand of taxable income that you earned or

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27 grand total Then tax there cut to given average

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corporate tax of 22% Suddenly you keep an extra five

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grand a year after taxes Wow that's a huge delta

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in safe Think about five grand 400 bucks and change

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a month free that you didn't have before What would

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you do with it If the government wants to close

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a recessionary gap well they or it can spend some

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money that it collected from taxes And we'll have that

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money percolate around the economy to scale up and hopefully

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match the gap meaning that if GDP is hovering around

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well 0.3% growth with fear of AH guy jumping into

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Cold River shrinkage as GDP goes negative and into recession

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territory which everyone hates for one reason or another Well

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what do we do What do we do Well then

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the government can quote spend its way out of trouble

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unquote by ordering a bunch of road repair and the

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new army tanks and water dams and piping and sewer

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thing is and whatever other things that would spend money

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on so that businesses when then I need to hire

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workers sell stuff to the government and the world returns

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to inflation fear rather than you know Coldwater Shrinkage On

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the other hand governments can promote spending by giving workers

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Mohr of their income to spend by cutting taxes hoping

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with the workers will then provide the liquidity or the

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economic stimulus in upgrading washing machines cars computers and buying

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way better wigs Okay so how should the taxes collected

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change to get this desired stable ish growth the economy

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result that everyone seems to want well the first is

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that they have to think about the multiplier effect Yeah

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that's what it is Remember that five grand in sudden

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savings via the big tax cut Well it has a

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huge effect That guy now spends the five grand on

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whatever a party is a grand The bartender bills 100

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bucks that bartender spends the $100 on whatever's and whatever

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spend on whatever you say have a positively vicious cycle

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or a virtuous one depending on how you look at

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it So how do you determine proper spending or tax

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cutting slash levying levels Will the government again uses the

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average MPs or marginal propensity to save to get a

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rough estimate of the multiplier this time calculating it as

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one over M P s like that or one over

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one minus mpc since MPs is the same as one

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minus MPC magic So if the average MPs is 10.1

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and the tax multiplier is 10 so what effect does

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this have on the economy when the government increases spending

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GDP also increases and vice versa But when the government

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increases taxes well disposable income decreases so GDP usually also

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decreases The negative sign just shows that changes in taxation

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and GDP happened in opposite directions right If a government

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wants to close a recessionary gap of saying a $50,000,000,000

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with MPs of 0.1 well the government could cut taxes

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by a total of $5,000,000,000 just closed the gap Okay

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quick and dirty recap Taxation is when the government takes

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revenue from people and businesses Taxes are necessary to help

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the government run And those taxes support lots of things

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like social welfare programs in the military and pretty much

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just everything the government does well Some taxes like sales

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tax don't affect everyday life in a huge way on

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their own Other taxes like income tax well can change

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Everything is suddenly If the government raises or lowers taxes

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it can completely change how the economy performs There are

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many different theories and practices when it comes to taxation

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Because no two economic scenarios are exactly alike There's no

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way to know for certain which tax program's gonna have

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the best effect And this is why there are huge

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debates about taxation on the end You Khun Bet government

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will not spend those dollars that you worked hard to 00:09:53.0 --> [endTime] earn efficiently