Barack Obama and the Bush Tax Cut

Topics: Keynesian economics, President of the United States, George W. Bush Pages: 3 (1215 words) Published: January 16, 2012
Barack Obama and the Bush Tax Cuts
From 2007, the global financial crisis caused the global economy in turmoil. Because the crisis originally from the defaults of the U.S. subprimes mortgage market, the financial institutions are experiencing a dramatically hard time, especially five major U.S. investment banks. In the Unite States, the stock market decrease about 40% off, and the real estate prices also fell sharply, so the wealth of household had fallen. Because of this situation, household take out their home equity loans to fund spending. However, bankruptcies and home foreclosures were climbing (Weinziel & Werker, 2009). For save the wealth, household need to reduce consumption; facing to the depression of stock market, businesses need to cut back on investment. Furthermore, in the short-term, the aggregate demand will be decreased, and in the long-term, the aggregate supply will be decreased. Both of them will reduce the GDP of Unite States. From my opinion, this is a reason why Bush reduced the tax. In order to protect the businesses, the government of the U.S. needs to simulate the consumer demand, encourages the investment, as the result of increase a new economy. Nonetheless, the government reduced its revenue because the tax is the major revenue of government in the Unite State. During this hard time as well as two foreign wars, the U.S. government budget had gone from surplus to large deficits. Because of tax cuts, government became a problem, as it couldn’t afford large future spending about Social Security and Medicare. Over that period, government needed to reduce the spending. As the reasons of household reduced consumption, business reduced investment, and government reduced spending, so the GDP of U.S. was fall. Bush may want to simulate the economy and decrease the unemployment rate through tax cuts, but facing so many social issues, Obama needs to alter some tax policies of Bush. There are three problems that Obama needs to solve: 1)...
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