Question

Effects of Income Tax Cuts on Economic Growth

Trump administration touted the widespread cut in Income Tax.

Your paper is to examine the effect of the tax cuts on Economic Growth

You are to

examines how changes to the individual (and business) income tax affect long-term economic growth

for example, examine effects of tax rate cuts in encouraging individuals to work, save, and invest

examine effects of tax rate cuts may encourage businesses to invest and employ etc.

Then the other side

The implications of tax rate cuts:

For federal budget

For national saving and interest rates.

Finally examine critically

The net impact on growth

Paper should be not less than 8 pages and may include charts, tables and other annotations

Please remember to use APA 6^th edition (or any of your choice) 12 font, double space with a reference and a citation page.

Answer 1

Lower income tax rates, higher the spending power of the consumers and can thereby increase an aggregate demand, leading to the higher economic growth and possibly inflation too. Whereas, if we see the supply side, then, the income tax cuts will also helps in increasing morale of the factors of production to work more yielding to the higher productivity with an efficient and effective utilisation of resources.

However, the effect of tax cuts also depends on how the tax cut is financed, the state of the economy and whether low tax rates actually increase productivity and the willingness to work.

The effects of reducing income tax rate on the economic growth are as follows :-

1. Increased spending. Workers will see an increase in their discretionary income. With lower income tax rates, they would keep more of their gross income, so effectively they have more money to spend.
2. Higher economic growth. With lower tax rates, we could expect to see a rise in the consumer spending because workers are better off. They wilL start working more rather than sitting idealy during theirr working hours.

3. Government borrowing. reduction in the Income Tax will lead to lower tax revenue which is more likely to cause higher borrowing. Though there are some economists who believes that an Income tax cuts can help in increasing the higher productivity.