Answer the following two questions as asked in the hypothetical example below. Your answer should be based on economic rationales. Each question (i.e., the answers provided to the questions posed in each meeting)
It is May 16, 2011, Rahm Emanuel’s first day as Mayor of Chicago. You have been selected as his primary economic policy advisor and will attend two briefing meetings with him today. You have been tasked with providing the new mayor “the economics perspective” on the various policy proposals awaiting his deliberation.
The first meeting is with the Department of Revenue. Mayor Emanuel has been asked to consider cutting Chicago’s portion of the state sales tax by 20 percent – from 1.25% to 1% – while working with state legislators to expand the tax base by closing the loopholes that allow luxury goods to go untaxed. These goods – like private club memberships, pet grooming, limo services, tanning parlors and interior design services – are not subject to the sales tax under the current system. How would you advise the mayor on this proposal?
The second meeting is with the new CEO of the Chicago Public Schools. The CEO has been working with the Obama Administration about receiving additional grant funding under the US Department of Education’s Race to the Top competitive grant program. The CEO asked Mayor Emanuel whether he should lobby for this grant funding in the form of a matching grant or an unconditional block grant. How would you advise the mayor on this decision? In order to sharpen his negotiating leverage, Mayor Emanuel asks you what you think the US Department of Education’s preference will be on the type of grant. How would you respond and why?
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