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American Elections 2016 and Economics, Part I 10/13/2015
American Elections and Economics, Part II 10/20/2015
Tax Day 4/15/2016
Stein v. Johnson, Tax Policy 9/20/2016
American Elections 2016 and Economics, Part I 10/13/2015
On November 8, 2016, Americans will vote for a U.S. President and Vice President. Because Americans currently have a president who cannot run for office as President Obama is in his second term, candidates are more active than normal, even though the election is more than one year away. One idea that is a large part of the election is how each candidate thinks the U.S. government will get involved, or leave alone, the economic activities of Americans. Because the U.S. President has great influence on American economic policy, it’s important to know the differing views on economic policy to choose which one works the best. This article is the first of many to discuss the history of economic policies and U.S history.
Up through the 1400s, Italian city-states had a big advantage over other European cities. Italians controlled the trade between Asia and Europe. Italian control of the Mediterranean trade and with Asian products ended when the Atlantic countries explored and colonized much of the world, beginning with Columbus discovering America in 1492. Power shifted from the south of Europe to the Atlantic countries. New ways of thinking and acting regarding money led what historians call The Commercial Revolution.
Perhaps most important to the Commercial Revolution was capitalism. Capitalism is an outlook and behavior taken by people who freely make, buy, and sell goods. In capitalism, people take risks in the hopes of improving their financial situation. Money that is earned is called profit. Individuals who earn a profit reinvest for more profit. In capitalism, hard work and risk taking is rewarded. Individuals tend to work harder for themselves because they get to enjoy the benefit of their labor. Bankers are ready to loan people capital in the hopes that they will be repaid with interest. The government’s role in capitalism is to be a sort of umpire, who makes sure that each citizen has a fair chance of competing. Government is not supposed to become an active participant in the affairs of the economy under capitalism.
Generally, material ambition became more accepted in European society. It had once been that all Christians were forbidden to earn interest from loaned money. Some elements in society were against the drive for wealth, as William Shakespeare expresses in his play “The Merchant of Venice,” set in 16th century Europe. Johannes Fugger of Augsburg was the head of a very successful banking family. The Fuggers funded the quest of Spanish King Charles I (1500-1558) to become Holy Roman Emperor Charles V.
New kinds of businesses emerged. The idea of the corporation emerged: a legal entity that had the rights of an individual. A joint-stock company was one where business people could put their money together to raise huge amounts of capital. Each person bought stock in the company and owned a share of it. These large amounts of capital were used to fund large enterprises, take huge risks, and reap or lose great amounts of wealth. Insurance products came into existence that guaranteed business ventures.
Merchants used their money to build new businesses, like manufacturing things. Cloth manufacturing was one such business. In a company that worked as a “domestic system,” weavers were paid to make cloth in their homes. Capitalists paid weavers with wages and raw materials. They then sold the goods in the market for a profit. Over time, they brought the raw materials and workers in one location, called the factory system.
Global trade increased the European standard of living in the 1700s and 1800s. Europeans invested in tobacco and sugar plantations in America and in coffee plantations in Asia. Owners took the profits from these businesses and reinvested them. The standard of living of citizens who lived in countries that followed some practices of capitalism greatly increased, while the standard of living of people who lived in countries that did not adopt capitalism either stagnated or decreased. From the 1500s on, Europeans, though not representing the largest population of the world, enjoyed the fruits of capitalism and rapidly modernized.
What will happen on November 8th, 2016?
Why did power shift from Italy to other European countries after 1492?
What is capitalism?
What is a corporation?
What happened to the European standard of living in the 1700s and 1800s?
Do some research. How do the different political candidates view capitalism?
American Elections and Economics, Part II 10/20/2015
Last week, we traced part of the history of the beginning of capitalism and how it played a role in Europe and the United States in different time periods. One idea of capitalism is best understood as “laissez-faire.” This is a French term meaning the absence of government getting involved in economic affairs. The idea is that individuals will better make decisions for themselves and their families than someone in government. At the end of the Medieval Ages and the beginning of the Early Modern Ages, many European kingdoms followed the economic policy of mercantilism. Mercantilism is very different than capitalism. Under mercantilism, kings established colonies to acquire gold and natural resources. Colonies existed to enrich the kings and the mother country. Because mercantilism always favored the kings at the expense of the colonies, colonists eventually demanded freedom.
In the 1600s and 1700s, there are many examples of mercantilism. Led by the “Sun King” Louis XIV, France established her empire in North America. Spain had already built a huge empire in the 1500s, conquering most of South America and large parts of North America. The 1600s was known as the “Golden Age of Spain” in part because of all the gold Spain took from the Incas and the Aztecs. Great Britain had colonies all around the globe, in North America, South America, and Asia. The Dutch and the Portuguese also had colonies. Each colonial power sought to reap benefits of having cheap raw materials to take back to the home country. And, each kingdom had economic control over its colonists, making laws that restricted the economic freedoms of the colonists. This means that the central government, not the individuals, controlled the colonists.
The American Revolution (1775-1783) was the first of many where colonists overthrew the royal powers and established republics with much greater economic freedom. After founding a republic in 1776, the United States of America implemented a laissez –faire economy, and individual Americans had great freedom over their economic decisions. The U.S.A. was an experiment for capitalism. This freedom over their economic lives continued at least until 1913, when the United States passed the 16th amendment, which allowed for federal taxation of income. In the 1800s, America was the immigration destination for most of the world. In 1776, the United States of America was the newest county in the world, with no navy and no standing army. By the time of World War I, the country was perhaps the mightiest. Economic freedom was one of the main factors that led to the rapid growth of the American economy in the 1800s.
History provides us with two examples of the effects of an economic system run by a central government, and one run by individuals in society. In the mercantilism that Europe’s kings practiced in the 1600s, 1700s, and 1800s, colonists eventually objected to the tight control kings placed on them and eventually revolted, like the Americans in the American Revolution. In the late 1700s and 1800s, American benefitted from capitalism. Under this economic system, Americans became the wealthiest and freest people of the world, and the poor had the greatest opportunities to better their own lives.
What is mercantilism?
What is capitalism?
What does laissez faire mean?
Name one example of a country using mercantilism as its economic policy.
Name one example of a country and time period where capitalism was the main economic policy.
By John De Gree of The Classical Historian
On April 18th, Americans who work are required by law to file tax returns. Popularly called “Tax Day,” no dread this day. Before midnight on April 18th, you may see long lines at the post office, as procrastinating Americans rush to drop off their tax forms. Failing to file tax returns is a crime and punishable by fines. Before 1913, however, this annual ritual did not exist. The federal government was not allowed to collect individual income taxes. Only state governments could tax individual income. On February 3, 1913, the 16th Amendment was adopted. The 16th Amendment to the Constitution allows Congress to lay and collect taxes on income. Before this amendment, the U.S. government collected revenue primarily from customs duties and excise taxes. Customs duties are fees placed on companies that import products from out of the country. Excise taxes are taxes that a producer has to pay on a specific product that he sells. Many of the founding fathers did believe in taxes, but unlike today’s politicians, they believed that taxes should be greater on the poor. Benjamin Franklin wrote that the poor should be taxed higher to give poor people greater incentive to work out of their poverty. This view was shared by Thomas Jefferson, James Madison, George Washington, and John Adams. (See Benjamin Franklin, On the Price of Corn and Management of the Poor, 1776). The American Founding Fathers disagreed on whether the federal government or the state governments should have more power in taxing incomes. During the Constitutional Convention, the delegates agreed that the federal government should not have control over taxing individuals’ income, because it would be a power they could easily abuse. Any tax on income would not reside in the federal government. Popularity of income tax and graduated taxes increased during the second half of the 1800s. A graduated tax is one where individuals pay a higher percentage, depending on how much money they make. The first tax on income was introduced by the U.S. Congress during the American Civil War, in the Revenue Act of 1861, and later, in 1862. The Civil War taxes ended in 1872. During the decade of the Civil War, and after, the Socialist Labor Party and the Populist Party advocated a graduated income tax. These political parties believed that those with higher incomes should pay more. Typically, Tax Day falls on April 15th, but this year, the federal government moved it to April 18th. Why? Residents of Washington, D.C. celebrate April 16th as Emancipation Day, the day President Abraham Lincoln signed the Emancipation Act. This freed the slaves in the rebelling states. Because April 16th falls on a Saturday, federal workers get Friday, April 15th, off. Therefore, the tax deadline was moved to Monday, April 18th. Since 1913, Americans have paid the federal government taxes on their income. The tax has been a graduated one, with high earners paying a higher percentage of their income. This is opposite of what many founding fathers intended. There are a number of debates regarding federal taxes. The following are just some of the questions Americans discuss:
How high should there be taxes on federal individual income?
Should federal individual income taxes be flat? This means, should everyone pay the same percentage of their income for federal taxes?
Should federal individual income taxes be graduated?
Do federal income taxes hurt America’s economy?
Are fees that the government collects actually taxes?
Should tax collection by the federal government be redistributive? This means, should the federal government take from one part of society to give to another part?
When are federal taxes too high?
Why does no one ever discuss abolishing the 16th amendment that was established in 1913?
Should all people pay federal income taxes, regardless of their income?
Should Americans receive money from the federal government, if they do not earn a certain amount?
Besides Donald Trump and Hillary Clinton, two other candidates are running for the President of the United States of America: Libertarian Party candidate Gary Johnson and Green Party candidate Jill Stein. The tax policies of these candidates reflect their political philosophies.
According to Johnson’s website, “For far too long, tax laws have been used not just as a means to collect needed revenues, but as a way for special interests to penalize their competitors while subsidizing themselves.” Gary Johnson believes that the U.S. tax policy helps those powerful enough to manipulate it, and hurts the average American. Johnson proposes to eliminate all tax loopholes, all income taxes and payroll taxes and replace it with a single consumption tax. A consumption tax is a tax on what you purchase. Johnson thinks this would save Americans a great deal of time, that it is fair because it treats all people the same, and that it would encourage the American economy to grow.
According to Stein’s website, “My Power to the People Plan creates deep system change, moving from the greed and exploitation of corporate capitalism to a human-centered economy that puts people, planet and peace over profit.” Stein does not have an explicit tax policy, but rather goals that are related to taxes. She wants to “increase government revenues, restore full employment, cut the dangerous military budget, rewrite the entire tax code to be truly progressive with tax cuts for working families, the poor and middle class, and higher taxes for the richest Americans.”
Libertarian candidate Gary Johnson and Green candidate Jill Stein have extremely different political philosophies. Johnson wants to have a minimal government that treats all individuals the same, regardless of their economic position. Stein wants to have a large government that treats individuals differently depending on their economic position. Johnson wants to tax everyone the same percentage of what they purchase. Stein wants to tax those she calls rich and she wants to provide tax cuts for everyone else, though she does not specify what amount of income or worth means someone is rich.
This November, American will choose their President, and one of the variables Americans will decide will be on the tax policies of the various candidates. Johnson’s and Stein’s tax policies are very different from each other.
Questions 1. What is Johnson's party and what is his tax plan? 2. What is Stein's party and what is her tax plan? 3. What does Johnson's tax plan tell you about his political philosophy? 4. What does Stein's tax plan tell you about her political philosophy? 5. Which tax policy do you think would make America stronger?
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