Macroeconomics

Hey all.

Everything is going pretty well here at CMU. I've been rather busy because State Convention is this weekend, and I will be spending my weekend volunteering for and networking with the Michigan GOP. I figured I'd take the time to post one of my papers I recently wrote for my Macroeconomics class. You are encouraged to think like an economist and solve problems in the world around you. You're supposed to make a connection with cost-based analysis. Enjoy!

Why Wouldn’t Tim Geithner Pay His Taxes?

If marginal cost exceeds marginal benefit, it is unworthy of doing. Confirmed Treasury Secretary Timothy Geithner did the entire math he needed to in order to decide not to pay his taxes. One factor could be his opportunity cost of giving up this $34,000 worth of tax money. Another reason could be his protection from the IRS, given his tight-knit bond with some of the nation’s top decision makers. Another reason could be his confidence that it would go unnoticed. Whatever the reasoning, Tim Geithner felt his marginal benefit outweighed his marginal cost of not paying the taxes.

It’s no secret that Geithner has been around some of the top legislators for a number of years now. This could lead to him knowing the ins and outs of not only the tax system, but also the economic situation. Instead of sending this $34,000 to the government to use on social programs, Geithner could have invested it. People making huge profits don’t just allow their dollar and cents to collect in a bank account. Geithner could have done a number of things such as invest in a collect deposit, a Roth IRA, mutual funds, or even stocks and bonds. Hopefully, for Mr. Geithner, he managed to avoid going though Bernie Madoff. The interest Mr. Geithner would collect would be more than the interest he’d have to pay back if he was to be caught.

Tim Geithner has been involved in the legislative process indirectly for about a decade. This leaves him with a lot of close friends that could have gotten him, and apparently have gotten him, out of a substantial amount of trouble. He knew this when he refused to pay his taxes.

When you look at some of the filing errors Mr. Geithner made, they are “under the radar” type things. He was able to say that he had “overlooked” them, and that they weren’t prominent issues. This seems contradicting since he had signed papers acknowledging that he hadn’t paid Social Security taxes, only adding to the presumption that Mr. Geithner knew exactly what he was doing.

As you can see, Mr. Geithner played the odds. His marginal cost of paying the taxes seemed to outweigh his marginal benefit of peace of mind. He chose to take his money and invest elsewhere, only to find out that he probably collected more interest on his investments than the government demanded in return. Should everybody think like this? No, few have the connections and ties that Mr. Geithner do. One exception is Tom Daschle, but that is a whole other story.