Good Fiscal Policy AND GM Research Paper Example

In recent years the American economy was able to recover from the deep financial crisis of 2007-2008. A relatively quick recovery was partly an outcome of the American Recovery and Reinvestment Act of 2009. It was a stimulus plan that helped to save the jobs and provided the relief programs for those who suffered the most from the crisis. For example, GM received more than $20 billion of credit money from the American government in order to stay afloat and implement the structural changes (Massad, 2011). In 2012 the American Taxpayer Relief Act was passed and helped to balance the tax rates and spending. As the result simultaneous increasing taxes and decreasing spending was avoided. Therefore most tax rates remained unchanged (CCH, 2013).

If to analyze the public spending and federal tax revenue, in 2014 they were as follows:

Public spending: 33.6% - Social Security and unemployment benefits, 26.6% - Medicare and health-related spending, 20.4% - military spending and veterans' benefits, 6.3% - paying interest on the debt, 3.3% food and agriculture, 2.6% transportation, 2.6% - housing, 2.0% - education, 1.1% - energy and 0.7% - science (Ritholtz, 2014).
Federal tax revenue: 46% - individual income taxes, 31.7% - payroll taxes, 13.5% - corporate income taxes, 3.3% - excise taxes, 1.1% - custom duties, 4.5% - miscellaneous (Ritholtz, 2014).
The 2014 budget deficit equaled to approximately -2.7%, which is close to the average over the past half a century (CBO, 2015). Moreover, the public spending as a proportion of GDP has started to go up since 2014 (The Economist, 2015). The composition of the public spending and federal tax revenue remains similar in comparison with the previous years.
In recent years, the federal budget deficit has been cut sharply from $700 billion in 2009 down to $468 billion in 2015 (CBO, 2015) due to the federal spending cuts and the economic growth. CBO (2015) forecasts that the deficit will be more or less stable until 2018. Then the gap between spending and revenues will grow again increasing the federal debt. The budget’s expenses will grow due to the following factors: retirement of the baby-boomers, increase of federal subsidies for health insurance, rising health care costs per beneficiary, and growing interest rates on federal debt (CBO, 2015). As the result of such a fiscal policy, the American economy will expand at a stable pace for the next few years. The unemployment rate will slightly drop, and the GDP will grow at a rate that is less than the average growth rate in the 1980s-1990s (CBO, 2015).
Undoubtedly, the fiscal policy of the U.S. Government has helped to stimulate the economic growth in the USA. The companies that were in the crisis were supported by the government. In addition, the income tax rates have not increased for the majority of the people, which means that people have more money for living or spending. What is more, since 2009 the unemployment rate has been gradually declining and in 2015 it equaled to approximately 5% (U.S. Bureau of Labor Statistics, 2015). Concerning the inflation rate, it gradually declined down to 0.5% (U.S. Department of Labor, 2015).
The automotive industry was benefiting from the economic growth and the fiscal policies applied by the government too. The domestic car production rose from 2.2 million passenger cars in 2009 to 4.2 million passenger cars in 2014 (Stata.com, 2015).
As for the General Motors, it became bankrupt in 2009 and after that a new General Motors Company was created. The main shareholders were the U.S. Treasury, the Canadian government, and the UAW Retiree Medical Benefit Trust (GM corporate web-site, 2015). GM owns four brands in the U.S.: Cadillac, Chevrolet, GMC and Buick. Nevertheless, the company has been unable to grow steadily. In 2014, sales growth equaled to 0.38% and the gross income declined in 2014 by 8% in comparison with 2010 (Marketwatch, 2015). These figures show that despite the favorable economic situation and proactive fiscal policies in the USA, GM is experiencing some problems.
Based on the forecasts of development of the American economy made by CBO (2015), the car manufacturing companies including GM should not worry about the volatility of the American market. Instead they should focus on cutting the costs and offering the new differentiated models that attract different groups of consumers. The low inflation rate in the USA means that there are multiple ways of financing the purchase of a car and the interest rates offered by the car dealers will probably attract a large number of the consumers. So in this case, GM should think of the incentives that will help to increase the number of sold cars. Both car manufacturers and consumers will win if the prices don’t rise too quickly and the jobs market functions without any major falls.
In conclusion, the fiscal policy initiated in 2009 helped to stabilize the American economy. There were a number of reforms in the healthcare and military sphere, and the low income taxes were kept for the majority of Americans – therefore the federal budget became much more balanced. Nearly all industries have benefited from the recovery of the American economy. Nevertheless, GM cannot adapt to the new market conditions and its sales have been mostly flat since 2010 after it was reorganized. At the moment the company needs to focus on the internal problems that hinder the company’s development. The external factors are favorable for the development of the car manufacturing industry.

References

Annual Financials for General Motors Co. (2015). Marketwatch.
Retrieved from http://www.marketwatch.com/investing/stock/gm/financials
CCH. (3 January, 2013). American Taxpayer Relief Act Of 2012. CCH Tax Briefing.
Retrieved 11 January, 2016 from
http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf
CBO. (26 January 2015). The Budget and Economic Outlook: 2015 to 2025. Retrieved 11
GM. (2015). History and Heritage. GE corporate web-site. Retrieved 12 January, 2015 from
http://www.gm.com/company/historyAndHeritage/rebirth.html/
Massad, T. (2011). Troubled Asset Relief Program (TARP). DIANE Publishing. Retrieved 12
p7aT10wC&dq=relief+program+GM&hl=uk&source=gbs_navlinks_s
Statista Portal. (2015). U.S. car sales from 1951 to 2014 (in units). Retrieved 12 January,
2015 from http://www.statista.com/statistics/199974/us-car-sales-since-1951/
Ritholtz, B. (15 April 2014). Tracking Our Taxes: Ritholtz Chart. Bloomberg. Retrieved 11
our-taxes-ritholtz-chart
The Economist. (14 February, 2015). At Last, A Proper Recovery. Retrieved 11 January,
2016 from http://www.economist.com/news/united-states/21643196-all-sorts-
americans-are-feeling-more-prosperous-last-proper-recovery
U.S. Bureau of Labor Statistics. (2015) Labor Force Statistics. Retrieved 12 January, 2015
U.S. Department of Labor. (2015). Consumer Price Index. Retrieved 11 January, 2015