Question

In: Economics

Should federal taxes be cut to boost middle class incomes, even if this increases the federal...

Should federal taxes be cut to boost middle class incomes, even if this increases the federal deficit? Should the top 1% income earners pay more than they do now? Why or why not? Define fiscal policy and define the federal deficit.

Solutions

Expert Solution

Fiscal policy is the government spending and taxation that influences the economy.

A federal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

A progressive tax is defined as a tax whose rate increases as the payer's income increases. That is, individuals who earn high incomes have a greater proportion of their incomes taken to pay the tax. A regressive tax, on the other hand, is one whose rate increases as the payer's income decreases.

federal taxes Should be cut to boost middle class incomes, even if this increases the federal deficit, because it will raise their standard of living, and will contribute to growth through higher consumption and investment.

the top 1% income earners Should pay more than they do now, but if the rate is increases, laffer curve will come into play. As tax rate will increase, people will find ways to get away with it. Hence, government should not raise them,


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