Would it be more likely for the federal government to increase taxes or decrease spending?

Expert Solution

It will be more likely for the federal government to increase taxes rather than decrease spending. The main reason for this that the Taxes charged by the federal government are progressive in nature i.e. people who earn more pay higher taxes and government spending help increase the income of the people at all levels.

The cut in taxes will only benefit the people who are paying them. They are the people with higher income. We all know as the income rises the consumption in proportion to income decreases and saving rises. If the government is allowing a tax cut at this level it will only increase the saving and will not have much effect on increasing the demand in the economy. Similarly, a higher tax will not affect consumption more so the government can raise the taxes.

But, if the government increases the spending or not decrease the spending, they will be actually creating demand in the economy which will benefit everyone across the economy. So, it is more likely for the federal government to increase taxes and not decrease the spending.

Rahul Sunny answered 1 year ago

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