Role of Government and Taxation Essay

Role of Government and Taxation

            The government plays an important part in stabilizing the economy of the country. It can control the price of commodities by issuing tax on products. Although by doing this, the principle of free market will be violated (Economy Watch, 1). By this way, demand for some commodities that produces negative effects to consumers and externalities can be controlled. Examples of commodities that produce too much negative effects are cigarettes, diesel, gasoline and other fuel products. Cigarette is a commodity that produces more negative effects than positive ones. Fuel, on the other hand, is a necessity in this modern world. However, studies show that it produces a global negative effect that cannot be taken for granted. It is said to be one of the major contributors of pollutant in the atmosphere (Socha, 4). And so the government must take action for this issue. Government can make laws that can create a way of counterbalancing the negative effects of fuel consumption. As it is impossible at to stop the consumption of fuel, the government can always find ways of making the demand for it becomes less. One way, presented earlier, is the issuance of high tax. Another way is to offer incentives for those people that use less fuel. Examples are those people who refrain from using cars or public transportation vehicles.

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            The use of tax will increase the price of fuels, which will be under the sales tax (CompleteTax, 1). In economics, as the demand price increases, the demand quantity decreases (Chevron, 1). This is the idea behind this plan. However, this plan can have a side effect. Fuel is needed by the transportation sector. An increase in the price of fuel means a decrease in the income of public transportation companies. To be able to make balance this loss, companies will pass the increase in price of fuel to their consumers. This means that the price of using public transportation service will increase. Surely, this is not something that the people of the state would like.

            Aside from the increase in fare for public transportation groups, increase in other commodities can also happen (DPC, 2). Since most products in an area are not locally produced but products of other areas, then a means of transportation is necessary. This means that the cost of selling a product includes transportation cost. An increase in transportation cost can increase price commodities. Electricity cost can also be affected since the cost of generating electricity also includes cost of electricity (Rose, 1).

            Overall, increasing tax of fuels can be an effective way of reducing pollution but will not be a practical solution. People can be discouraged from using their own cars but the effects on other sectors cannot be compensated.

            Giving incentives to people who walk or bike to work or school seems a promising solution. If choosing between spending on fuel for a ride or walk or bike and get “paid”, people will surely choose the latter option. The problem with this is that it is hard to determine who among all the people of a state walk or bike to work. Surely, the government will not send people to spy on who drive and who does not. There is no paper to certify that someone does not drive to work. Because of this, this option seems to be far from reality for now.

            The use of public transit is easy to check compared to those who walk or bike. Receipt can be asked for as a proof of using public transit. Using this as a means of transportation is the best option people have if compensation for those who do not ride their own car to work will be given. They will just ask for receipt and present it to sector giving the compensation. This option is clearly better than the first option.

            The employer can also encourage their employees to use public transits. The government will just have to ask for their cooperation. It is more effective than the government posting ads since the employers have direct contact with employees. However, the ideas that the employers are the ones that will give the incentives to the employees seem to be off-ground. It is the responsibility of the government to give the incentives. It is possible, however, for the government to use the employers as a middleman in giving the incentives. The incentives will be given to the employers and the employers will give the incentive to the employees.

The incentive will be take effect on the salary of the employees since it is difficult to give immediate discount whenever they are using public transit. This is because it will pass the burden to public transit company and will cause further issue. Public transit groups will be obligated to give receipt that the employees will use as proof. This will be the basis of the company on how much incentives an employee will get.

It is clear that the government can reduce pollution. However, the correct method must be carefully chosen. After weighing the two options, giving incentives to the employees who uses public transit is the better option. However, this may not give better result than giving higher tax to fuels but it will cause less economic drawback. In any case, it will be better if the government can inform the people better about the effects of pollution to the earth. After all, it is the public who will decide if they will participate or not. It is just a matter of choice.

Works Cited

Chevron. “The Price of Fuels.”2008. Chevron Company. 4 August 2010 <http://www.thepriceoffuel.com/whataffectsfuelpricing/>.

“Complete Tax.” The Lowtax Network.2009. 4 August 2010 <http://www.usa-sales-use-tax-e-commerce.com/Intro_sales.asp>.

Dorgan, Byron L. The Impact of High Fuel Prices on the American Economy and Businesses. 24 May 2007. Democratic Policy Committee. 4 August 2010 <http://dpc.senate.gov/dpcdoc.cfm?doc_name=fs-110-1-83>.

Economy Watch. Free Market Economy. 2010. Stanley St Labs. 4 August 2010 <http://www.economywatch.com/market-economy/free-market-economy.html>.

Rose, Kenneth. The Impact of Fuel Costs on Electric Power Prices. June 2007. 4 August 2010 <http://www.appanet.org/files/PDFs/ImpactofFuelCostsonElectricPowerPrices.pdf>.

 Socha, Tom. Air Pollution and Its Causes. 9 November 2007. Health and Energy. 4 August 2010 <http://healthandenergy.com/air_pollution_causes.htm>.