Eco 372 - Fiscal Policy Paper: Walmart

Fiscal Policy Paper: Walmart

 Raina Gist, Nick Grim, Omar Khan, Sharon Mansell, Shane Sager, & Rebecca Whitesel

ECO/372

May 23, 2016

Instructor Michael Polakoff

Government Spending (Intro)

Research federal government spending and taxes over the last 3-5 years (fiscal policy). Has total government spending increased or decreased? Explain.  Have income tax rates increased or decreased? Explain. 

Impact of Fiscal Policy-

Describe the impact of these fiscal policies on the U.S. economy

The government has been spending a lot of money over the past decade due to the recession of 2008.  The spending is in response to the American Recovery and Reinvestment Act (ARRA) which was passed February 2009 in an effort to stabilize the economy and the citizens by providing food assistance, tax relief, employment through construction projects and support to local and state governments with increased matching of funds.  This program is nearing the end of it’s useful life as according to the Congressional Budget Office (2015), close to half of that impact occurred in fiscal year 2010, and more than 95 percent of ARRA's budgetary impact was realized by the end of December 2014.  Therefore the benefits of the ARRA program are waning so the economy is not seeing a large impact due to this spending program within the last 3 – 5 years (the program has been running since 2009 and is scheduled to end in 2019).

Additionally the government continues to spend and the current 2016 presidential budget has done nothing to curb the spending.  According to the Congressional Budget Office (2016), Of 10-year baseline budget projections it published early in the year,  CBO now estimates that if no further legislation is enacted this year that affects the federal budget, the total federal deficit for fiscal year 2016 will be $534 billion, about $100 billion greater than the shortfall posted in fiscal year 2015.  The continued fiscal policy of spending at this time can have some serious economic consequences if not addressed and soon.  The CBO states that at the amount of debt held by the public, in 10 years will be equal to 86% of the GDP, more than twice its average over the past five decades. (Congressional Budget Office, 2016)  Therefore, it is in the interests of the US economy to limit our spending policy and turn it to a more moderate spending program to limit the amount of debt and deficit spending we current are doing now.

How Walmart is Affected

Fiscal policies help create employment and encourage investing so that the economy will have long-term growth. Through government spending and taxation, the government uses the monetary policy to guide the economy in a positive direction. The plan will ultimately increase or decrease the supply and demand of goods and services.

In regards to Walmart and other retail companies, fiscal policies affect the costs associated with doing business, whether or not a business is competitive, and how the company invests. Economic policies regarding taxes affect consumer income, which will determine the amount of money consumers have to spend on goods and services. When taxes are raised on products and services consumers are less likely to splurge on anything that is not a necessity. If taxes are lowered, consumers will spend more at retail stores. Fiscal policies also include government spending. If the government adds to the deficit, interest rates will rise. An increase in interest rates will affect the cost of using credit. High rates affect credit cards and loans such as mortgages. Consumers will spend his or her money wisely when rates are too high. On the business end, fiscal policies influence how much risk a retail business can take. If the government offers incentives to employ or credits for business expenses, retail companies like Wal-Mart are more likely to hire more employees and expand the company. To keep a competitive edge, Wal-Mart may cut costs by not hiring employees or offering raises so that the business can continue to offer discounts.