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2. With the use of examples explain the difference between direct and indirect taxes.  (200-300)

There are two different ways government can collect taxes from people: with direct and indirect taxes.

Direct taxes depend on income; it is a fraction of income directly taken from the income someone receives. For example, if the tax rate is 10%, someone earning 1 million dollars a year will pay 100 000 dollars as taxes. Direct taxes could also be progressive, which means the fraction increases as income increases, but in any case it is taken directly from income.

Indirect taxes are depending on purchases; for each purchase some portion of the money paid goes to government. For example, the sales tax could be 7% for each computer, so everyone buying a computer would have to give 7% of the price paid to the government. Indirect taxes could also be fixed; for example for each pound of rice bought 1 dollar goes to the government.

Direct taxes cannot be escaped since they are directly taken from the income earned, but indirect taxes can somehow be escaped if the person does not buy the product. Nevertheless, government tries not to charge too much from people or they will find ways to not pay it anyway.

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With the use of examples, explain the difference between a progressive tax and a regressive tax. (200-300 words)
Proportional is a straight line, because proportional means that the fraction of income paid as taxes same the same, so the line in is a 45° angle. However, some people agree that richer people should pay more, while some other say that they should pay less. Therefore there are two other types of taxes: progressive and regressive.
Progressive taxes are so called when the fraction of income paid as taxes increases at the income increases. For example, the person earning 10 thousand dollars a year will pay only 10% of taxes, while the person earning a million dollars a year will pay 20% of taxes. The fraction is not fixed, therefore as income increases the fraction increases, and the curve on the graph is higher than the proportional one.
Regressive taxes are a quite strange concept, as it implies that the more money someone earns the smaller fraction of it he has to pay as taxes. In that case, the 10 thousand dollars person will pay 20% of it as taxes, while the million dollars person will only pay 10%. The fraction is not fixed, but as income increases it decreases, and the curve on the graph is lower than the proportional one.

On the graph, we can really see that with progressive taxes, as income increases taxes increases while with regressive taxes as it increases taxes decreases. The “fairness” of each of them is nevertheless unsure.

Irfani posted this article “Soak the Very, Very Rich” on Diigo that I thought was really interesting in the sense that it shows the different concepts of taxes. It talks about the tax cuts that Bush implanted when he was the President of the United States and that are expiring at the end of 2010. Obama’s dilemma is to figure out whether he should keep the tax cuts, abolish them all, or modify them.

Before starting to talk about the actual situation and the future of the taxes, one thing to know is that there are three types of taxes: progressive, proportional and regressive. Those are illustrated on Figure 1 down below.

Proportional taxes are the easiest to understand: no matter the income earned, the fraction of that income that has to be paid as taxes is fixed. For example, in that case someone who earns 10 thousand dollars a year and someone who earned a million dollars a year will both have to pay 15% of it as taxes. The fraction is fixed; therefore the line makes a 45° angle: it is proportional.
Progressive taxes are so called when the fraction of income paid as taxes increases at the income increases. For example, the person earning 10 thousand dollars a year will pay only 10% of taxes, while the person earning a million dollars a year will pay 20% of taxes. The fraction is not fixed, therefore as income increases the fraction increases, and the curve on the graph is higher than the proportional one.
Regressive taxes are a quite strange concept, as it implies that the more money someone earns the smaller fraction of it he has to pay as taxes. In that case, the 10 thousand dollars person will pay 20% of it as taxes, while the million dollars person will only pay 10%. The fraction is not fixed, but as income increases it decreases, and the curve on the graph is lower than the proportional one.

James Surowiecki, author of the article, explains his point of view clearly: richer people should pay a high proportion of their income as taxes. For now, “someone making two hundred thousand dollars a year and someone making two hundred million dollars a year pay at similar tax rates,” but Surowiecki does not believe that it is fair. Fairness is a hard concept because it changes depending on people. Surowiecki thinks that progressive taxes (where richer people pay more taxes) are fair, while those same rich people may think taxes should be proportional, or regressive.

In order to solve this problem of taxes, Surowiecki has some solutions, since he says “A better tax system would have more brackets, so that the super-rich pay higher rates.” This is a great solution for the people from low to middle class since that will mean fewer taxes for them, but not so great for rich people since they will have to pay more. This solution is one that should be taken into consideration since it has quite valid arguments, but it also has some problems. One major problem is that it does not take in consideration that “in a place like Manhattan, where the average apartment sells for nine hundred thousand dollars, your money doesn’t go as far.”

That solution may need some changes, but it is a possible solution for the problem of Bush’s taxes cuts expiration.

Since March the 20th, the Eyjafjallajokull Volcano in Iceland has been erupting, but it has gotten much worse since last week, creating a cloud of ash that it spreading all over Europe, and it does not seem to get better. It actually seems to get worse and worse. This is a real problem for the economy since no planes are allowed to fly in Europe. Thousands of people are trapped in airports, hoping for a change in the wind so that it could push the ash cloud out of Europe. For now, it is costing “more than £1 billion” to European airlines, but it is not the end. Plane flights are canceled in 23 European countries till at least Monday.

This situation is not the worse for the people who have been told to postpone their vacations, but for the people who are in other countries and unable to get back. Thousands of people have to sleep in airports, with no where else to go, and in some cases no money to go to the hotel. Flights could be canceled till mid-week, with no promises of an amelioration after that.

BBC News Article

CNN News Article

For this presentation we had to come up in groups with three criteria that would decide of the best economy, and compare countries according to these criteria. My group chose to compare Korea, France and the USA according to health care, education, and employment. The USA won at the end.

During these presentations, I learned that the slides are really important. Everyone had more or less the same presentation so we had to make it interesting for the audience, but also easy to read. I learned that we should use as few words as possible but rather use images in order to convey out message. Also, graphs are an easy but efficient way to convey the data, if they are used in a good way with different colors for different countries for example.

The five major problems that Japan is facing during this crisis are:

-Japan’s “lost decade” after 1992 turned into two lost decades

-universities lack rudimentary technical equipment; and entrepreneurial conversation is absent

-productivity growth fell steadily in the 1980s and Japanese companies lost ground to the low-wage economies of South Korea and Vietnam

-Central and local government debt together are nearly 180 per cent of gross domestic product

-The lack of a risk-taking business culture, often noted, can be overstated.

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Real GDP for the last decade

2000: 1327.96 billion $

2001: 1339.76 billion $

2002: 1457.33 billion $

2003: 1800.02 billion $

2004: 2601.32 billion $

2005: 2146.58 billion $

2006: 2267.55 billion $

2007: 2589.84 billion $

2008: 2853.06 billion $

Real GDP per Capita for the last decade

2000: 23.3K $

2001: 24.4K $

2002: 25.7K $

2003: 25.7K $

2004: 27.6K $

2005: 28.7K $

2006: 29.6K $

2007: 31.1K $

2008: 32.6K $

2009:32.8K $

Real GDP growth for the last decade

2000: 3.91%

2001: 1.85%

2002: 1.03%

2003: 1.09%

2004: 2.47%

2005: 1.90%

2006: 2.17%

2007: 2.17%

2008: 0.40%

What conclusion can you draw?

French economy increased quite steadily