Fiscal Policy - Nike

Fiscal Policy - Nike

Shovanda Davis, Leron McIver, Barbie Patterson, Josephine Walker

ECO/372

May 18, 2016

Dr. John Eze

Fiscal Policy

Our nation’s government functions as a business entity that uses fiscal policy as a tool to manage the nation’s economy. Fiscal policy is utilized to impact and influence the nation’s economic growth and stability, as well as define the gap between our nation’s taxation and spending. As it relates to the details, our government dispenses payments for their purchases of goods and service. Not only are payments made, but taxes are collected. An increase and or decrease in taxation is a method used to help budge the nation’s economy. These changes of increase and decrease are, of course, felt by an elected audience, yet it affects the nation as a whole. These changes are also influential to the nation’s macroeconomic activity and Aggregate Demand. The purpose is to stimulate the economy by reducing unemployment, and stabilizing business cycles as well as encourage an economically acceptable interest rate (Weil, 2008).

Government Spending and Taxation

Nike Inc., a 44 billion dollar company, is the leading supplier of athletic apparel. It is America’s second-biggest employer, and therefore, subject to the tax laws and regulations of the United States. The results of the fiscal year ending March 22, 2016 were driven by strong consumer demand. The company’s earnings per share was up 22% because of the company’s gross margin expansion, lower tax rates, and lower share counts. The company’s growth is economically centered on new innovation and transformation, direct to consumer industry, and an increase in product cost. Nike’s earnings rose 8%, which is up by 14% on a currency neutral basis. They have continued to perform exceptionally well in distribution markets like the United States, China, and the United Kingdom.  Despite their higher than average prices, Nike increased in its gross margin, which offset the higher product input cost, the foreign exchange rates, higher discounts, and the excess of invention in selected markets. At the present time, the company’s tax rate is at 16.3%, whereas a year ago it was 24.4%. This is due to an increase in earnings outside of the United States (Nike, 2016).  

Impact of Fiscal Policies on the U.S. Economy

The fiscal policy within the United States is in large part viewed as a balancing act between interest rates and monetary policy or how much money to allow within the economy. Money movement within an economy can be used to stimulate economic grow or retract as needed to maintain a healthy economic environment. Contrary to many Americans’ belief, neither the executive branch of government nor the congress actually sets fiscal policy or the resulting interest rate. Interest rates are determined by the Federal Open Market Committee which consists of seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents. Along with interest rates, monetary policy is used to promote a sustainable level of economic growth by controlling inflation. The Federal Open Market Committee is also responsible for these policies.