This paper investigates the multifaceted causes of the U.S. economic crisis, arguing that no single factor is solely responsible. It traces the crisis to globalization, sub-prime mortgage lending, credit contraction, and — most prominently — excessive corporate tax burdens that pushed investment and jobs overseas. The paper also critiques the failure of U.S. political leadership and the role of tax sheltering, exemplified by the Enron scandal. In its second half, the paper evaluates potential remedies, drawing on Keynesian fiscal theory to advocate for tax cuts, increased government spending, and alternative revenue sources such as the taxation of legalized marijuana.
There is no single cause that can be made responsible for the economic crisis in the United States. The crisis is the result of a political, economic, and social situation that developed on a global scale and affected many nations. Both a monetary crisis and an economic crisis emerged simultaneously. The global financial crisis affected all nations, and one of the causes of the depression is blamed on globalization, which according to experts produced deflation and contributed to sub-prime lending, especially in the United States.
Sub-prime lending is the method by which banks are provided funds by the central bank and has been identified as a source of bank collapses. Sub-prime mortgages in the U.S. stood at $1.3 million in 2007 when the current crisis began, and rose to $100 million by 2008. This growth resulted in the burst of the housing and real-estate bubble, causing the sub-prime crisis that made lenders withdraw from the market (Jansen; Beulig; Linsmann, 88).
The economic crisis also relates to lower buying power, joblessness, reduced aggregate demand, and very high taxes. Corporate taxes, as the evidence shows, caused the spiral that resulted in the crisis. There is also an argument that it was the credit crisis that triggered the financial crisis, which in turn affected investment and the whole economy in a chain reaction (Muller, 28). Generally, it was the higher rate of taxes that caused a spiral of inflation and subsequently deflation. Richard C. Cook also blames the failure of the U.S. government, arguing that it caused the crisis. He contends that the U.S. experienced a collapse of the nation's manufacturing base that was caused when the Federal Reserve raised interest rates "to over the twenty percent level" (Cook, Economic Crisis: The U.S. Political Leadership Has Failed).
The major culprit in general was the tax policies that drove entrepreneurs and businesses to the wall, causing the collapse. Tax on corporate income in the U.S. is heavy — 40% to be specific — so much so that multinationals and even small firms have made it a point to reincorporate in other countries to avoid U.S. taxes. This has given rise to serious complications in the U.S. economy, because jobs and investment are shifted outside the country, and the resulting depression has become acute (Brue, 234).
A great deal of capital was, and continues to be, invested abroad because of the excessive income tax levied on corporations. A second issue is the political tendency to turn a blind eye to the problem of the tax burden. This resulted in companies venturing abroad and investments moving outside the country. Politicians blame joblessness on companies leaving America but fail to point out that excessive tax burdens are the main reason for their departure.
"Enron-style sheltering and market collapse"
"Keynesian spending and tax cuts as remedies"
"Drug legalization and alternative tax revenue"
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