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4. Redistributive philosophies and incentives consider a society comprised of two people. Lorenzo earns an income of $120,000 per year, and Neha earns an income of $35,000 per year. The government considers a redistribution plan that would impose a 20% tax on Lorenzo's income and give the revenue to Neha. Without any incentive distortion, Lorenzo would retain $96,000, and Neha would end up with $59,000. However, let us assume that since Lorenzo will not receive all the income he earns, he decides to work less and earn an income of only $110,000, which will be owed in taxes. With the redistribution plan, Lorenzo will take home an income of _________.

5. The $22,000 that Lorenzo pays in taxes will be transferred by the government to Neha. Let us assume that since Neha now receives payment from the government, she will not work as many hours and will earn an income from work of only $34,000 instead of her initial $35,000. With the redistribution plan, Neha's total income (including the government received) is now______.

6. Without a redistribution plan, total income in this society is______.

7. After the redistribution plan is implemented, the total income in this society is______

8. Therefore, the redistribution plan total income in this society_______(increases/decreases).

9. According to the utilitarian political philosophy, the $22,000 transferred from Lorenzo to Neha will benefit Neha than it hurts Lorenzo. Which of the following statements is true according to this philosophy?

A.The government should definitely institute the plan because it will increase overall utility.

B.The government should not institute the plan because it has no right to take money from one person and give it to another.

C. The redistribution may or may not be desirable, depending on the utility gain's relative magnitude and efficiency loss.

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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
28 Sep 2019

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Related questions

The Gibson Company is a United States (US) firm that is considering a joint venture with Brasilia, DF, a Brazilian firm that grows and processes coffee beans. Gibson has a patent for a new coffee processing method. This intellectual property is motivating Gibson to expand beyond importing coffee to engaging in a joint venture to process the coffee. Gibson will invest $8 million in the proposed joint venture project, which will help to finance Brasilia 's production using the newly patented process.
The Brazilian government has guaranteed that the after-tax profits (denominated in Reals, the Brazilian currency) can be converted to US dollars at the current exchange rate and sent to the Gibson Company each year. Current exchange rates can be found at http://www.oanda.com.


For each of the first five years, 60 percent of the total profits will be distributed to Brasilia, while the remaining 40 percent will be converted to dollars to be sent to Gibson. The income tax rate for the joint venture will be 10%. However, the Brazilian government is considering raising the income tax rate to 30%. At the present time, the Brazilian government doe not impose a separate income tax on profits sent out of the country. However, the Brazilian government is considering imposing an additional 10 percent income tax on profits distributed to a foreign company. Assume that there are no other forms of tax. After considering the taxes paid in Brazil, assume an additional seven percent tax imposed by the US government on profits received by Gibson Company.

The expected total profits resulting from the joint venture per year are as follows:
Year
Total Profits from Joint Venture (in BRL)
1
40 million
2
60 million
3
70 million
4
90 million
5
120 million

Gibson's average cost of debt is 6 percent before taxes. Its average cost of equity is 9 percent. Assume that Gibson�s US income tax rate is 10 percent. Gibson�s capital structure is 70 percent debt and 30 percent equity. Gibson adds between 2 and 5 percentage points to its cost of capital when deriving its required rate of return on international joint ventures. Gibson plans to account for country and other risks within its cash flow estimates.

Gibson is concerned about country risk in the following two forms:

(1) Will the Brazilian government increase the corporate income tax rate from 10 percent to 30 percent (20 percent probability)? If this occurs, Gibson will receive additional tax credits on its US taxes, resulting in no US taxes on the profits from this joint venture.

(2) Will the Brazilian government impose a separate income tax of 10 percent on the profits distributed to foreign companies such as Gibson (20 percent probability)? If this occurs, Gibson will not receive additional tax credits, and the company will still be subject to US tax on the profits from this joint venture.

Assume that the two types of country risk are mutually exclusive. If it does anything, the Brazilian government will only implement one of these changes in its tax policies (i.e., the increase in the basic income tax on the profits of the joint venture or the additional income tax on profits distributed to foreign companies). The Brazilian government may also choose to leave things as they are.

Assignment

5. Under what circumstances might Gibson shift to more equity financing when considering joint ventures like this? What is the minimum required return that would still make this investment worthwhile?

1. Joe Fixit has an appliance-repair business. He has more business than he can handle and wants to hire another repair person. Joe estimates that three appliances can be repaired each hour by a qualified person. Joe bills out labour at $45 per hour, but he stipulates that the minimum charge for appliance-repair estimates is $30 plus parts. What is the marginal revenue product of a qualified repair person? What is the maximum hourly wage that he would pay an employee?

2. Sara Lee just graduated from college with a degree in accounting. She had five job offers: Bean Counters CPA, $35,000; Assets R Us, $27,000; The Debit Store, $30,000; J & Jâ's CPAs, $33,000; and The Double Entry Shop, $40,000. What was her opportunity cost if she accepted the job with The Double Entry Shop?

3. Sam Club earned $50,000 and paid taxes of $10,000. Samantha Heart earned $60,000 and paid taxes of $12,000. If these taxes were paid to the same government agency, is the tax on income progressive, regressive, or proportional? How did you reach this conclusion?

4. Carol Jones wants her business to increase sales by 50 per cent over the next 5 years. To do this, she must hire three more people. She wants to determine how to evaluate these people, so she lists their job specifications and develops job descriptions. She also lists where these employees would work and what training they would require. What management functions is Carol performing, and how do they apply to this scenario?

5. Sam Jones, Mary Adams, and Larry Brown have been talking about starting their own business for several years. Sam is an electronic repairman, Mary is a partner in a large law firm, and Larry is an excellent salesperson. Sam and Larry will work in the business on an equal basis. It costs $100,000 to start this business. Sam has no money, Mary has $60,000, and Larry has $40,000. If they form a partnership, how would you recommend that they organize?

6. Joe Latte completed a business plan and determines that it will take $120,000 to open the coffee and gelato shop. He has $30,000 of his own money and will have to obtain $90,000 in loans or grants. How should Joe go about getting financing? What is the probability that he can obtain a grant to start a combination of coffee and Italian ice cream shop?

Learn more about Social Security and Medicare reform (to improve financial strength of the programs) or solvency through Internet exploration. Find an article or resource related to one of these topics. Attach the article and write a brief summary (300-400 words) of what you found. Summarize the Article.

Our Standards:The Thomson Reuters Trust Principles.

U.S. Social Security reform: the clock is ticking

Clocks are seen during the performance "tck tck tck" by Global Campaign for Climate Action at the Barcelona Climate Change Talks, November 4, 2009. REUTERS/Albert Gea

CHICAGO (Reuters) - Can you count on your Social Security benefits when retirement rolls around?

Most Americans worry about this - partly due to the nonsense they hear from political opponents of Social Security and ill-informed media. You will hear that the program is bankrupt, its reserves are nothing but a bunch of IOUs, or that Social Security is a Ponzi scheme.

All of those claims are false, but there is one good reason for concern. Social Security faces a long-term financial imbalance that would force sharp benefit cuts in 2034 unless the government makes changes. The problem stems from falling fertility rates and labor force growth - which reduces collection of payroll taxes that fund the system - and also from the retirement of baby boomers, which increases benefit costs.

Absent reform, Social Security could continue to pay roughly 75 percent of promised benefits. The cuts would mean that the typical 65-year-old worker could expect Social Security to replace 27 percent of pre-retirement income, down from 36 percent today, according to the Center for Retirement Research at Boston College.

No surprise, then, that only 37 percent of workers are “very or somewhat confident” that Social Security will be able to maintain current benefit levels in the future, according to survey research by the Employee Benefit Research Institute (EBRI) - although confidence is much higher among older workers and retirees.

From a math standpoint, potential solutions to the problem are straightforward. The cuts can be avoided through increased revenue, benefit reductions or some combination of the two. But the politics are another matter.

Republicans are far from holding a unified position on the issue. For example, U.S. Representative Sam Johnson, a Texas Republican who chairs the House Ways and Means subcommittee on Social Security, has proposed legislation containing two significant benefit cuts: gradually raising full retirement ages to 69 by 2030, and using a less generous annual cost-of-living adjustment formula known as the chained CPI.

Meanwhile, President Donald Trump has so far held to his campaign promise of opposing cuts. He has suggested that economic growth will solve the problem by stimulating wage growth and payroll tax collections - a position most economists dismiss as unrealistic.

REPUBLICAN ENTHUSIASM LACKING

The last major Republican reform proposal dates back to the George W. Bush administration, which proposed shifting the program to personal savings accounts - an idea that aroused Republican passion but that went down in flames.

“That was an idea that got people excited, but there hasn’t been much enthusiasm for Social Security reform among Republicans since then,” said Andrew Biggs, resident scholar at the conservative American Enterprise Institute. Biggs worked on Social Security reform as an associate director of the White House National Economic Council.

Meanwhile, Democrats are in no mood to work with the Trump administration on anything that forces a compromise on their core values - and they have shifted significantly to the left on Social Security reform. Representative John Larson has introduced legislation that would not only restore trust fund balance but expand benefits. That is by far the best approach, since roughly half of all households have saved less than $25,000, according to EBRI. Larson’s bill is cosponsored by more than 80 percent of the Democratic House caucus - more than any previous expansion bill.

The bill would increase benefits by 2 percent across the board, shift to a more generous annual cost-of-living adjustment that reflects spending by seniors and set a new minimum benefit at 25 percent above the poverty line. It also would cut taxes for millions of retirees by boosting significantly the threshold for taxation of benefits.

The plan raises revenue by gradually increasing the payroll tax rates that fund the program. The rate hikes would begin in 2019, and by 2042, workers and employers would pay 7.4 percent each, instead of the current 6.2 percent.

Larson, a Connecticut Democrat, also proposes changes to the payroll tax cap for very wealthy beneficiaries. Currently, payroll tax is collected only on wages up to $127,200; the plan would start collecting taxes again on wages above $400,000. That exempts more income than many earlier expansion plans, which either removed the cap entirely or resumed taxation at $250,000.

The payroll tax cap feature played an important role in boosting support for expansion legislation, according to Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare, a progressive advocacy group that supports the bill. “It brought many of the more conservative Democratic legislators on board,” he said.

Of course, the Larson bill is going nowhere in the Republican-controlled Congress, so Social Security reform will not happen before the 2018 midterm elections at the earliest - and perhaps much later than that. But that does not mean beneficiaries should worry about draconian cuts in 2034.

Even if reform is not achieved by 2034, Biggs thinks the problem likely would be solved at the 11th hour through tax increases - simply because benefit cuts must be enacted and phased in over long periods to give beneficiaries time to adjust.

”If they were going to do this by cutting benefits, it should have been enacted 20 years ago,“ he said. ”If you want to do it by raising taxes you want to wait as long as possible, so that you get to the point where the only solution is to put more money into the program.”

But the uncertainty on Social Security policy will continue to undermine public confidence in the program - and that is worrying. Meanwhile, the clock is ticking.

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