Thus, Federal Tax Policy on this case provides minimal effects on the said company. Kellogg Brown and Root has its ways to evade paying the right amount of taxes liked what happened in Cayman Islands where the said company avoided paying its fair share of Medicare Tax through setting up front companies which enabled them to evade almost 100 million USD tax a year.
In order to close the loophole on the tax system of the United States, two representatives from Illinois proposed a new legislation known as the Fair Share Act of 2008 which will prohibit the U. S. government contractors from setting up sham companies (“Democrats Want to Close KBR Tax Loophole” 1). With this new legislation on the side, once passed, it will now be very hard for Kellogg Brown and Root to evade taxes, thus, increasing its cost of production and lowering its profit. According to the projected budget of the Congressional Budget Office, provided that the present laws and policies will remain unchanged, there will be a deficit of 219 billion in the succeeding three years (“The Budget and Economic Outlook: fiscal Years 2008 to 2018. ” 9).
As noted earlier, with a budget deficit, it is expected that Kellogg Brown and Root will experience significant loss in its total revenue caused by fewer government projects. It is therefore advisable for the officials of Kellogg Brown and Root to start finding ways on how insulate their company from such dilemma. The proposed fiscal stimulus package, which includes tax rebates for individuals, of the Congress can be considered as part of Keynesian Policy.
Noted that Keynesianism favors a more state intervention in the market primarily to protect the interest of consumers from abusing firms; whereas, Monetarism wants the economic forces be the sole factor to influence the market and to have zero state intervention since it provide market distortions (“Monetarism and Keynesianism. ” 1). Tax rebates provided by the government is a form of government intervention in the market especially if the federal government aims to improve the consumption pattern of consumers in the market to uplift the GDP.
Oftentimes, tax rebates are being provided by the government to raise the income and purchasing power of consumers, thus, they can purchase more goods and/or services available in the market. With regard to the question if the proposed fiscal stimulus package will be beneficial to the economy, the answer will depend on the considered time horizon [short run or long run]. In short run, the proposed fiscal stimulus package will provide benefits to consumers as it instantly increase their income/purchasing power which will then result to higher consumption volume of the entire economy.
The said higher consumption volume of the consumers will manifest its benefit to the private sector as firms enjoy higher sales, revenue, and profit. On the other hand, in long run, the proposed fiscal stimulus package can uplift the inflation rate as the demand for goods and services in the market continue to increase. Furthermore, the government will lose large sum of money from rebating taxes to individuals which can only make the ballooning budget deficit even worse. At the end of the day, it is up for the government to decide whether to continue implementing the said policy based on the sector they prioritize and on urgency.
“Democrats Want to Close KBR Tax Loophole. ” 13 March 2008. NPR. org. 27 February 2009 <http://www. npr. org/blogs/news/2008/03/democrats_want_to_close_kbr_ta_1. html> “Monetarism and Keynesianism. ” 2008. Rai University. 27 February 2009 <http://www. rocw. raifoundation. org/management/bba/BusinessEconomics-II/lecture-notes/lecture-14. pdf> “The Budget and Economic Outlook: fiscal Years 2008 to 2018. ” 23 January 2008. Congress of the United States Congressional Budget Office. 27 February 2009 <http://www. cbo. gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook. pdf>