Academic journal article Journal of the International Academy for Case Studies

Entrepreneurs and the Federal Deficit Gap (Making the Case for Expenditure Cuts And/or Tax Increases.)

Academic journal article Journal of the International Academy for Case Studies

Entrepreneurs and the Federal Deficit Gap (Making the Case for Expenditure Cuts And/or Tax Increases.)

Article excerpt

CASE DESCRIPTION

This case allows students, to assume the role of an owner/operator of a family owned construction company. From this vantage point, students will analyze and provide workable solutions for closing the United States Federal deficit gap for the fiscal year ended September 30, 2011. Students will also analyze macro and micro effects of their proposed solution including effects on families and the construction industry.

The case leads students through a process to close the Federal deficit gap by a combination of tax increases and government expenditure reductions. The tools provided to students when making expenditure reductions include estimated 2011 Federal expenditures for the following categories: Social Security, Medicare, Education, Defense, Welfare/Unemployment, Courts/Police, Transportation, General Operations, Interest, and Other. Also provided are explanations of what type of programs are encompassed by each category of expenditure and a five year trend analysis of these expenditures, identifying which areas have seen the greatest expenditure increases.

The tools provided students to be used when analyzing which income level or type of taxpayers should see tax increases (or decreases) in order to close the budget gap are equally robust. The case provides estimates of incremental tax revenue for a 1% increase in the Federal tax rate for the individuals in six different taxable income strata. Estimates of additional tax revenue from the following actions are also offered:

* Increasing the Federal corporate tax rate by increments of 1%

* Increasing the FICA tax rate by increments of 1%

* Increasing the Social Security tax base (from $106,800 in 2011)

Students are directed to propose expenditure reductions and nominal percentage increases (or decreases) for each tax strata until the $1.3 trillion gap is closed. There are no right or wrong answers. Additional probative questions are provided to allow instructor follow-up. These questions focus on micro and macro fallout from the proposed actions by the students. Consideration is also given to the entrepreneurs and related individuals in the case study.

The case is particularly timely given the difficulties of the U.S. construction industry and the eminent 2012 national elections. With candidates and Congress reluctant to make tough decisions to raise taxes or eliminate popular spending programs, the case provides students with workable estimates of Federal expenditures, separated into familiar categories.

CASE SYNOPSIS

You are evaluating the economic viability of Creative Construction, a small construction company struggling to survive following the 2008 economic downturn. The economic downturn inspired stimulus spending by the Federal government left in its wake a considerable Federal deficit. Estimated at $1.3 trillion, the 2011 deficit pushed the overall U.S. Federal debt total above $15 trillion, mobilizing Congress to raise the U.S. debt ceiling multiple times and leading to a downgrade in U.S. debt by Standard & Poors. Your task is analyze the 2011 Federal budget deficit and make recommendations for expenditure reductions (by Federal program) and for tax increases (by type and income level of taxpayer). Additional questions will be asked related to possible impacts of your proposal on Creative Construction, its employees and the U.S. as a whole.

ENTREPRENEURS AND THE FEDERAL DEFICIT GAP

In 2008, Creative Construction, Incorporated, owned and operated by Jason Carter, thrived as a general contracting firm in the housing industry in the central part of the U.S. Jason and his crew of three employees built new houses and completed major residential remodeling projects. Jason's employees included a framing carpenter, a finish carpenter, and a carpenter's apprentice. The apprentice was Jason's 19 year old son, Todd. Jason's wife, Anne, then a housewife, had an accounting degree and kept all the financial records for the corporation. …

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