Question

(b) Take one proposal presented by the Minister for Finance either in Budget 2018 or Budget 2019 and analyze it in terms of the following.

i: What was the goal of the budgetary measure?

ii: Discuss the arguments advocated by the various interest groups who are affected by the measure.

iii: Analyse the merits of the proposal in terms of the economic concepts of efficiency and equity.

Answer 1

Reference : https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

By Kimberly Amadeo : November 27, 2018

President Trump signed the Tax Cuts and Jobs Act. It cuts individual income tax rates.

i: What was the goal of the budgetary measure?

To increase money left with people so that they will spend more, Economy will have more aggregate demand, more jobs generated and higher GDP growth.

ii: Discuss the arguments advocated by the various interest groups who are affected by the measure.

People were arguing that corporate got tax cuts post recession and this tax cuts are still going on for them, In USA people have started to face inflation and have still not fully recovered post recession and hence income tax cut was necessary.

iii: Analyse the merits of the proposal in terms of the economic concepts of efficiency and equity.

It will disturb equity because income tax is a progressive tax and if this decreases then income inequality increases. Govt. may shift this burden on goods and services and hence poor may suffer as indirect taxes will make them suffer more.

Efficiency in tax collection may not be affected as machinery remains the same which collects taxes. However, people may be left happier and this may reflect in efficiency increase in them.