Example Of Research Paper On First Time Homebuyer Credit
Type of paper: Research Paper
Topic: Taxes, Economics, United States, Credit, Banking, IRS, Time, Income
The economy of United States (US) as well as other Western countries emphasizes a lot over the credit buying. The trend of buying expensive products through the credit cards is very common in the western world, especially in the United States. The economy of the United States has just come out from a severe economic downturn, however the clouds of economic contraction and problems are still shadowing on their heads (White, 2001).
One of the major things that intensified the current economic crisis to mold in such a horrible position is the high amount of credit rationing within the region (White, 2001). The financial institutions of the United States are still in the favor of credit buying and borrowings, because it is the only way through which they can strengthen their mechanism accordingly (White, Dacey & Sebastian, 2003). The economy of the United States is still in a kind of risky situation in which one adverse action can endanger the life of the entire economy of the country (White, Dacey & Sebastian, 2003). Obama Administration who took up the charge during the current economic crisis in the United States gave numerous economic suggestions to the financial institutions along with the high amount of bailout packages to leap from the problems (White, Dacey & Sebastian, 2003). During the current economic crisis, the United States had delivered lots of inefficiencies for the entire country. The country had lost lots of things particularly to meet the things accordingly. As per the statistics, the country had reported bankruptcy at regular concession. There were number of banks that were bankrupted during the current economic crisis.
Giving Bailout packages to economically weak companies and prevent them from yet another crisis is not the only solution of the problem that may arise due to the economic downturn, as it is very important for the country to strengthen their Internal Revenue System (IRS). During the current economic downturn, the tax to GDP ratio of the US decreased drastically which created lots of financial and economical problems for the country particularly.
The Scenario Description
The government of the U.S. initiated number of solutions and actions to get their economy on the previous track; however the country is not in the favor of eradicating the entire credit structure. The policy makers like Federal Treasury (FED) have initiated a program known as “First time Home Buyers Credit Program,” which was made to assist those individuals who are intending to buy home for the first time (White, Dacey & Sebastian, 2003). The measures were taken to helping the housing market to recover from the economic downturn and sustaining the future of the U.S. economy (White, Dacey & Sebastian, 2003). It is required to analyze about this particular program initiated by the Government of the United States to get the information regarding its effectiveness. It is also required to highlight any problem or issue that came into being due to this particular issue.
Discussion & Analysis
The Economy of the United States (US) is the largest economy of the world in terms of Purchasing Power Parity (PPP) and National Income. The entire economy of the United States represents about 22% of the total nominal Gross Domestic Product (GDP) of the world (White, Dacey & Sebastian, 2003). The currency of the United States “US-Dollar” is referred as a Mother Currency, and uses for almost every global transaction. Apart from maintaining a stable GDP Growth rate, the economy of the U.S. has the accolade to have 9th largest per capita income in the world. The service sector is considered as the most productive sector for the country representing 80% of the overall country’s GDP particularly. Everything was going in a perfect way for the world, and for the United States as well before the current economic crisis (White, Dacey & Sebastian, 2003). It was September 2007 in which the confidence of the people from the economy of the United States lifted up completely because of the severe Sub Prime Mortgage Crisis taken place at that time. There were two companies that were completely failed to entertain their clients in terms of buying home and credit. The names of those companies are Fredrick Mac and Freddie Mae (White, Dacey & Sebastian, 2003). As per the Financial Gurus and experts, the economic crunch that came into being during the period from 2007 to 2011 was initiated and tightened its claws due to the high amount of buyer’s credit. Expensive products such as cars, home, laptops and others were bought on the credit cards at that time. The liquidity crunch that was created at that time for the financial institutions as well as for the individuals made them reluctant to payback their borrowed amount to the respective party. There was hundreds of bankruptcy filed during that time along with the filing of legal lawsuits against individuals who were showing their reluctance to payback the borrowed money to the financial institutions (Irs.gov, 2015).
Instead of eradicated the problem of High Credit, the economy of the country initiated one more program of giving houses on the credit which is nothing but a new way to indulge the economy into a severe economic crisis. Fed Chairmen Ben Bernanke said, United States is now working on the core principles designed specifically by John Maynard Keynes (JMK) during the World War II. According to JMK, an economy will not grow effective and efficiently until and unless the citizens of that country hoard their money and shows their reluctance to consume their money. Internal Revenue Service (IRS) is the revenue service of the United States that governed specifically by the government of the United States. This particular agency of the country is known as a bureau of the Department of the Treasury. IRS collects revenue in terms of income recognition of the country, and the first income tax was raised and reported in the financial year 1862. Currently, the organization has the accolade to collect US$ 2.4 trillion of money on the name of tax revenue. IRS has its headquartering located in Washington, the United States. There are around 89,000 employees are working with the company, with an annual budget of US$ 11.2 billion.
Bernanke and other Treasury Officials of the U.S. brainstormed their mind to reach on a final conclusion that how they can overcome this hoarding of money and how they can increase the level of money supply of the country (White, Dacey & Sebastian, 2003). High money supply is the only provision that can help out the country to nullify the adverse effects of the economic crisis. Internal Revenue System (IRS) gave full authority to Bernanke and team to implement such strategies from which they can increase the level of spending into the country. Currently, every single person of the United States has a loan credit of more than $ 50,000 just because of the increasing balance of payment of the country (Irs.gov, 2015). Therefore, it is extremely important for the economy to come up with such powerful measures and strategies form through which they can decrease the current account balance and resultantly increasing the level of expending and consumption. During the economic crisis, IRS had shown their inefficiency in terms of collecting the revenue accordingly. Tax evasion and unofficial announcements of tax levy are some of the major aspects that affected the entire financial structure of the company.
The program is known as First Time Homebuyer’s tax credit program that specifically designed to value the buyer and their credit that are borrowing and purchasing home for the first time. The state has recently developed and launched a program that allows credit against the property tax of a homeowner. The credit allows on such basis, if the bill of the property tax exceeds from a fixed percentage of the entire gross income of a person. Precisely, it can be said that the program applied a sort of limit on the amount of property taxes to first time home buyer to pay tax according to their income (Irs.gov, 2015).
It means that if a person lies in a category of 1,000$ tax net, and if the property (First time) has an applicable tax of more than 1000$, then the person will be entitled to pay the property tax that associated with their net income not any sort of higher tax. This particular facility has been given to the individual buyers to make the things in their favor, and giving them the tax credit. In order to execute the tax credit program in a perfect and organized manner, it is required to emphasize over the applicants to report their total income on which the tax is applicable. Income information must be reported for the homeowners along with any other individuals that is associated with this stance. Tax Credit Facility is extremely worthwhile for the people who are pressurize due to high tax net of the country. There are two important points or benefits that were highlighted due to the Tax Credit based Facility and these benefits are as follows
It decreases the tax Burden
The tax burden on the Creditors will certainly decrease accordingly with this particular facility. During the year 2008, 2009, 2010 and 2011, the tax burden amounts on the creditors were extremely high that created numerous economic problems for them particularly (Irs.gov, 2015). This new tax credit program allows the creditors to pay the amount according to their income, not on the basis of their property’s value. First Time Credit Program specially designs for the individuals who are having the home for the first time in their life. It means a single person can avail this particular opportunity once in a life time. The citizens of the United States which were severe burdened and pressurized due to the current economic crisis will now receive a sort of effectiveness on the name of this particular program that not only decreases their tax burden but also prevent them from being hand to mouth in the later months after paying the debt. This particular program can be a bit stressful for the financial institutions, as the program might not work them in the future, because of having low amount of payback amount.
It will assist the IRS
Internal Revenue System (IRS) is one of the most important tax collection authorities of the United States (US). The authority is entitled to collect tax related to property and income. The citizens are liable to give the factual and most relevant information related to their total income along with their operational expenses to analyze the total amount of money which they are liable to pay to the authority. The current program that is initiated by the Treasury department of the United States (US) certainly bought positivity in the workings of the IRS in terms of collecting revenue, and it will certainly help out the authority to increase the level of their tax net, as well as the tax to GDP ratio (Irs.gov, 2015). The GDP of the United States (US) which is highly dependable over the working of their service sector is very happy with this particular decision initiated by the Government in terms of Homebuyer credit. Every citizen of the country is entitled to furnish their actual income in front of the IRS along with the total amount of assets they own; therefore the chance of creating problems and tax evasion would be very low within the country. IRS has also found that this program is the most productive way to increase the level of money supply within the country, as it has the ability to give an opportunity to the individuals to increase the level of rotation of their money. The theory of JMK can be applied over the current economic scenario of the United States in which the government is trying to flourish their earnings with the help of increasing the money supply within the country.
Theoretically, a tax is a financial charge or other levy that impose on a taxpayer or on a legal entity from the government or a state to use their space of doing business and job. There are two important types of taxation, known as Direct tax and Indirect Tax. Direct Tax is the one which will be deducted from the total income earned by an individual or an organization, however any amount that indirectly subtracts from the income is known as indirect tax, like sales tax which is usually applied on the household goods while buying them from the shop. Apart from this, indirect tax also applied over the buying and selling of property. However, the government of the United States has initiated a new regulation through which the first time home buyer is not entitled to pay the tax higher than a certain level. The measure was taken to strengthen the workability of the individuals and to increase their purchasing power parity. The entire analysis is based on the same matter and found that the new action of the Government of the US will certainly bring economic effectiveness towards the country, and will also strengthen their IRS system. The country is very happy with this particular revenue management system, and the country has to promote this revenue management system in the future as well to become more effective in the near future.
Irs.gov,. (2015). First-Time Homebuyer Credit. Retrieved 30 January 2015, from http://www.irs.gov/uac/First-Time-Homebuyer-Credit-1
White, J. (2001). Alternative minimum tax. [Washington, D.C.]: The Office.
White, J., Dacey, R., & Sebastian, S. (2003). IRS modernization. Washington, D.C.: U.S. General Accounting Office.