Question

In the Budget Challenge, you had an opportunity to increase or decrease taxes. What changes did you select? Who is helped or harmed by the changes that you proposed? How did the overall debt change as a result of your proposed changes?

Answer 1

I select tax decrease .

Lower tax rate will give people more after tax income ,which will be used to buy more goods and services.Tax reduction is an expansionary fiscal policy which will boost saving and investment and thus increase the productive capacity of the economy.So both the individual and the economy is helped by decrease in tax. Tax cuts are beneficial to the poor .Growth will increase if the lower income earners are given tax cut. .But decrease in taxes will adversely affect government revenue .Government revenue will decrease in the short term and this will create deficit in budget and increase government debt.So the government will be harmed.Thus decrease in tax will stimulate the economy in the short term but long term impact on GDP will be less.

Due to decrease in tax,government revenue will decrease. This will create deficit in the budget and debt will increase because the government will borrow more.