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Answer Managerial Economics Discussion

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Economics
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Florida Gateway College
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Running Head: MANAGERIAL ECONOMICS DISCUSSION 1
Investment Tax Credit
Student’s Name
Institutional Affiliation

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MANAGERIAL ECONOMICS DISCUSSION 2
Understanding the grounds of the objections by local labor union officials can be
comprehended by reviewing what an investment tax credit is and its impact. An investment tax
credit is a business investment tax incentive offered to auto manufacturers (Lerche, 2019). The
tax credit objective was to counter the migration of these manufacturers to countries of low wages.
However, in the achievement of that objective, the tax credit would end-up affecting workers
negatively. The tax credit is beneficial to the manufacturers in that they deduct a portion of their
costs of investment forms their taxes.
The local union officials objected to the tax credit because it would hurt the workers while
it would benefit the manufacturers. Since their interests are on the welfare of the workers, they
objected for the following reason. The tax credit would lower the cost of high-tech equipment and
capital. When the cost of high-tech equipment and capital reduces, the manufacturers will invest
more in the high tech equipment since the capital cost will also have gone down. The outcome of
that is that labor methods of production will be replaced by capital-intensive production methods
where workers will be laid off. According to the labor union officials, therefore, the tax credit will
directly result in workers losing their jobs and increasing the rate of unemployment.
There are possible strong counter-arguments to the above objections. The main one would
be that the tax credit would a positive move considering input substitution optimality. The counter-
argument in this line of thought would be that some people would lose their jobs if the tax credit
is implemented. However, if it is not implemented, the manufacturers would migrate to countries
where labor is cheaper, and there will be no job (Sheng, 2016). Therefore, it would be considered
wise to accept the tax credits and keep the manufacturers and the few jobs that will remain than
lose it all.

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Running Head: MANAGERIAL ECONOMICS DISCUSSION Investment Tax Credit Student’s Name Institutional Affiliation 1 MANAGERIAL ECONOMICS DISCUSSION 2 Understanding the grounds of the objections by local labor union officials can be comprehended by reviewing what an investment tax credit is and its impact. An investment tax credit is a business investment tax incentive offered to auto manufacturers (Lerche, 2019). The tax credit objective was to counter the migration of these manufacturers to countries of low wages. However, in the achievement of that objective, the tax credit would end-up affecting workers negatively. The tax credit is beneficial to the manufacturers in that they deduct a portion of their costs of investment forms their taxes. The local union officials objected to the tax credit because it would hurt the workers while it would benefit the manufacturers. Since their in ...
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